Eurozone Inflation Surges as Oil Prices Reach New Heights

Olli Rehn, governor of the Bank of Finland and member of the European Central Bank's Governing Council, says that despite rising energy prices, there are no signs yet of second-round effects on wages or consumer goods in the euro area. He cites moderate wage growth as a reason for this, which has not yet led to a wage-price spiral.

Inflation in the eurozone surged from 2.9% in July to 3.3% in August, driven by oil prices trading above $90 per barrel after a 25% increase since the conflict began. However, Rehn notes that inflation expectations remain anchored near the ECB's 2% target, suggesting that people still believe prices will eventually calm down.

The ongoing conflict involving Iran and the blockage of the Strait of Hormuz has led to sustained pressure on energy prices. The economic environment is described as a stagflationary shock, where growth is slowing while prices are rising. Rehn warned the ECB needs to prepare for a scenario where the conflict drags on.