Olli Rehn, a member of the European Central Bank's Governing Council and governor of the Bank of Finland, indicated on August 19, 2026, that wage developments in the euro area have remained moderate. He noted that there are no strong indications yet of second-round effects on inflation stemming from the Middle East energy shock. Rehn emphasized the importance of keeping inflation expectations anchored to maintain this trend. The ECB Governing Council plans to re-evaluate the inflation outlook at its upcoming September meeting.
Rehn highlighted that the ECB is actively working to formulate an appropriate monetary policy response to the supply shock caused by the Iran war and the broader Middle East conflict, which has severely disrupted the oil market and led to the closure of the Strait of Hormuz. This disruption has trapped approximately one-fifth of global oil and LNG exports, along with most spare production capacity, within the Persian Gulf. Rehn warned that elevated energy prices could directly and indirectly increase inflation and potentially generate second-round effects through wages and broader price-setting.
He recalled that euro area inflation had stabilized around 2% at the beginning of the year, with markets expecting policy rates to remain around that level, before the conflict escalated. The ECB had increased interest rates in June and kept them unchanged in July to assess the persistence of the shock and its potential indirect and second-round effects. Other ECB officials, like Gabriel Makhlouf and Álvaro Santos Pereira, also noted that inflation was not yet broadly spreading, but they remained vigilant, with Makhlouf stating that every meeting, including October's, is "live" for rate decisions.
Rehn also addressed Europe's longer-term economic challenges, advocating for a common European safe and liquid asset. He argued that such an asset could deepen capital markets, strengthen the euro's international role, reduce financing costs, and improve monetary policy transmission. He pointed out the fragmentation of European sovereign debt markets, contrasting the roughly $30 trillion U.S. Treasury market with Europe's combined public debt, which is about one-third of that. A European safe asset could help retain more European savings within Europe, rather than financing investments in the United States.
