European Central Bank Governing Council member Rehn: Energy prices are approaching an unfavorable inflation scenario

⑴ European Central Bank Governing Council member Olli Rehn stated on Friday that energy prices are approaching the adverse scenario set by the ECB. ⑵ However, he noted that the surge in long-term borrowing costs has limited the extent to which this round of inflation spreads to the broader economy. ⑶ The eurozone inflation rate has reached twice the ECB's target level, putting further pressure on the central bank to raise interest rates. ⑷ Although the ECB has indicated that inflation risks are skewed above forecast levels, Rehn pointed out that risks exist in both directions. ⑸ He added that this highlights the fact that economic growth and inflation forecasts still face very high and widespread uncertainty. ⑹ Rehn stated that the rise in long-term interest rates will slow economic growth and reduce the transmission effect of energy shocks on prices and wages. ⑺ He warned that borrowing by technology companies may pose stability risks due to excessive valuations, and the market may experience corrections. ⑻ He said that a significant correction in valuations related to artificial intelligence could spread through both the stock and credit markets. ⑼ Rehn noted that history shows technological revolutions can transform the economy, but financial markets may also overestimate their short-term returns. ⑽ He also pointed out that one uncertain factor is that market sentiment towards artificial intelligence could suddenly reverse. ⑾ Overall, the direction of energy prices and long-term interest rates together create policy challenges, and risks related to artificial intelligence valuations have also entered the ECB's field of attention. Going forward, it is necessary to focus on inflation transmission and changes in market sentiment.