Investors need to be aware of the risk of rising inflation to avoid shock adjustments, even as price rises still appear to be temporary, Dutch European Central Bank (ECB) policymaker Klaas Knot said on Monday.
“The current risk appetite in the markets can only be sustained by low inflation and low interest rates”, the Dutch central bank governor told reporters.
“I still expect the rise in inflation to be largely temporary, but we have to take other scenarios with structurally higher inflation and higher interest rates into account. Because if we don’t, it could lead to shock price falls in the future.”
A spike in energy prices pushed inflation in the euro zone to 3.4% in September, its highest level since 2008. But inflation is still expected to slow next year, as the effect of higher energy prices wanes.
“The effect of energy prices on inflation is temporary by nature, as they need to keep rising to keep pushing up inflation”, Knot said.
“But inflation is also pushed higher by global supply restraints, which might be less temporary. They could be caused by a readjustment in international trade, as supply chains are spread less across the globe.”
Source: Reuters (Reporting by Bart Meijer; Editing by Emelia Sithole-Matarise)