Rehn Cautions Rising Interest Rates May Limit Energy Price Impact

Finnish Central Bank Chief Olli Rehn addressed concerns over inflation in Europe, saying that soaring energy prices may not have as significant an impact on the broader economy due to rising long-term borrowing costs.

Energy prices are approaching the ECB's 'adverse' scenario, with inflation surpassing 3% and potentially reaching 4% by year-end. However, Rehn noted that higher interest rates will slow growth and reduce the pass-through of energy shocks to other prices and wages.

The rise in government borrowing costs has been particularly notable, with Germany's 10-year borrowing cost at a 17-year high of 3.57% and the US bond yielding 5.32%. Rehn also warned that tech borrowing poses stability risks due to high valuations, which could lead to a sharp correction spreading through equity and credit markets.