Rehn ties future rate moves to broader inflation pressures
Bank of Finland Governor Olli Rehn said future European Central Bank (ECB) rate decisions depend on whether energy pressures spread. The ECB raised rates by 25 basis points in September, but he sees no second-round effects yet.
Energy drives the inflation gap
September headline inflation reached 3.8 percent, energy inflation 18.9 percent and core inflation 2.5 percent.
The ECB projects headline inflation above its 2 percent target in 2027 and at 2.1 percent in 2028; core inflation projections are 2.6 and 2.3 percent, respectively.
Rehn said Middle East energy pressures warranted September's rate increase, but inflation was not broad-based.
Only 19 of 136 HICP components exceeded 5 percent inflation, similar to 2025; the share above 3 percent was broadly unchanged since early 2024.
Softer labor demand and easing wage growth distinguish current conditions from 2022.
Decisions remain data-dependent and meeting-by-meeting, with no preset rate path.
December projections will reassess the outlook and risks.
Irish figures obscure moderate growth
Revised euro area Q2 growth was 0.6 percent.
Replacing Irish GDP with modified domestic demand gives quarterly growth of 0.3 percent throughout the first half.
September ECB projections put growth at 0.9 percent in 2026, 1.4 percent in 2027 and 1.5 percent in 2028.
Defence and infrastructure investment, resilient consumption and AI-related services, investment and exports support activity.
Middle East escalation poses downside risks.
Bank lending rates have risen; tighter financing can restrain credit demand, growth and inflation despite continued loan-stock growth.
Investment needs financial integration
Rehn's structural prescription extends beyond monetary policy to joint European defence investment within NATO, non-fossil energy and productivity.
He advocates renewables, nuclear power, skills and less red tape.
Completing the Savings and Investments Union would channel savings across 27 fragmented markets.