ECB's Rehn says inflation still hasn't spread to goods or wages
Eurozone inflation rose to 3.8% in September, above forecasts, even as core inflation held at 2.5%.
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European Central Bank governing council member Olli Rehn said inflation has not expanded into non-energy goods or wages. He said elevated long-term borrowing costs are slowing growth and already reducing the pass-through of energy costs into other prices and pay.
Rehn made the same argument on October 2. The repetition suggests he is building a case for holding rates rather than responding to new data.
The comments come against a split inside the governing council. Bundesbank president Joachim Nagel said on Monday that inflation risks still tilt to the upside, a day after data showed eurozone inflation had jumped to 3.8% in September, above forecasts, while core inflation held at 2.5% as expected.
ECB president Christine Lagarde has said rising long-term rates will slow euro area growth. Traders cut bets on an October rate rise after her remarks, with markets now pricing the odds of a hike at under 40%, according to Bloomberg.
The disagreement leaves open whether market-driven increases in long-dated yields can substitute for further ECB tightening. The absence of wage and core-goods pass-through keeps the case for a pause intact, and continues to support demand for long-dated Treasurys as investors read the European and US rate paths together.