European Central Bank officials warn of limitations: monetary policy cannot resolve supply shocks

⑴ European Central Bank Governing Council member and Cyprus Central Bank Governor Panicos Paragiannis warned that the ability of central bank officials to counter inflation shocks has its limitations. ⑵ Speaking to reporters after addressing parliamentarians in Nicosia on Monday, he stated that the central bank's monetary policy cannot resolve war, fiscal issues, or supply chain problems. ⑶ These remarks highlight the challenges facing the European Central Bank: consumer price trends are closely linked to the duration of the Middle East conflict, making policy response even more difficult. ⑷ Although European Central Bank policymakers have raised borrowing costs and may raise interest rates again before the end of the year, Paragiannis pointed out that if natural gas or oil prices surge again, the public should have realistic expectations of how effective the central bank's policies can be. ⑸ He said the European Central Bank has raised interest rates and makes policy decisions based on data, but the current situation is highly unpredictable and anything could change by December. ⑹ He further noted that if inflation is caused by other factors, the European Central Bank cannot control it through interest rates. ⑺ Further attention will be paid to the impact of the Middle East situation on energy prices and changes in data before the European Central Bank's December meeting.