European Central Bank (ECB) policymakers are closely watching inflation data as upside risks persist, according to Slovenia’s central bank chief and ECB Governing Council member Primoz Dolenc. In an interview, Dolenc said the ECB may need to keep raising rates, but the exact timing and magnitude of any move remain too uncertain to predict.

Limited pass‑through from energy costs

Dolenc noted that the composition of inflation data shows only a limited pass‑through of high energy prices to other goods and services, suggesting no second‑round effect on wages. This, he said, provides some reassurance that broader inflationary pressures remain contained.

Current rate stance and recent inflation readings

The ECB has lifted its deposit rate twice this year, bringing it to 2.5% after inflation surged to nearly twice its 2% target last month. Last month’s headline inflation reading of 3.8% was above expectations, driven largely by volatile energy prices, while core inflation has stayed relatively stable.

Risks still skewed higher

Dolenc warned that risks remain tilted toward higher price readings. Energy prices could rise further, especially with low natural‑gas storage ahead of winter, and any jump in wholesale gas prices would quickly affect retail prices. Food prices also pose a risk due to high input costs, droughts and El Niño.

Even a stronger‑than‑expected euro‑zone economy could add inflationary pressure, though the region grew at its fastest rate in four years in the second quarter, driven largely by personal consumption and services spending.

Financial market concerns

Dolenc acknowledged concerns about rising longer‑term borrowing costs, noting that ECB board members Philip Lane and Isabel Schnabel have warned that higher yields could weigh on the economy. However, he said monetary policy continues to be transmitted efficiently across the euro area, and no destructive effects of rising yields have been observed.

Outlook

Dolenc emphasized that the ECB will decide on any further policy moves on a meeting‑by‑meeting basis, guided by incoming data. He added that the central bank remains vigilant about the ongoing conflicts in the Middle East, Ukraine and elsewhere, which could sustain upward pressure on inflation.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.