ECB’s Wunsch: Oil Prices, Rate Hikes, and Eurozone Inflation Outlook
Key Insights from Pierre Wunsch’s Reuters Interview
FRANKFURT, June 19 (Reuters) - The following are highlights of a Reuters interview with European Central Bank policymaker and Belgian central bank governor Pierre Wunsch.
Oil Prices and Global Energy Dynamics
In an Oil Glut, Prices Could Go Below Pre-War Levels
"People are starting to talk about an oil glut in 2027, which is actually something I mentioned at the last meeting of the Governing Council. I would not be surprised that oil prices, within a year, go down to levels that would be below what we had before the shock."
Longer-Lasting Demand Destruction and Green Energy Transition
"I would not be surprised if some of the demand destruction had more permanent results — a more permanent dynamic of wanting to have more security of supply, or actors adapting to new forms of energy, such as EVs or heat pumps."
ECB Policy Decisions and Inflation Outlook
Another Hike Depends on Second-Round Effects
"Now that oil prices are going down, do we see second-round effects or not? If we don't, and oil prices go down, inflation is going to go down, and we are within the margin of error of our model. Then I am data-dependent, meeting by meeting."
"It is useful to make a distinction between the second-round effects you see from intermediate goods to energy-intensive goods, where the impact is not direct but close to direct — and the rest. And ultimately wages, because we know wages are the last to adapt."
Waiting Until September — Risk of Hiking Too Late
"If you see some price pressures, you can wait, but then you risk hiking when the trend reverses. We had a not-so-nice reading of services inflation. If we see more of that, maybe you want to hike another 25 basis points to be on the safe side, and then you can cut rates when you start seeing the dynamics in the other direction.
"The more you wait before you hike, the more you risk being late and then having to cut afterwards. If the data is not going in the right direction, I would plead for a second hike and not for waiting. But if what we see is ambiguous, I don't see a need to rush."
Backward-Looking Risk and Inertia
"There is always a risk of misinterpreting the data. There is always some degree of inertia in the system once prices move in one direction or the other."
Assessing the ECB’s Policy Cycle
A Cycle We Could Have Looked Through?
"Having now an agreement, one could potentially argue that the shock was mild enough that, knowing wage developments in Europe were going in the right direction, this is a shock we could have completely looked through.
"We will probably never know for sure. But then, we have hiked 25 basis points when inflation is going up so real rates have actually declined slightly, and we can cut at some point if need be. Have we made a mistake? No. We have taken a decision based on uncertainty."
'Meeting by Meeting' Risks Losing Meaning
"We are in an environment where uncertainty is very high. This justifies the 'meeting by meeting' and 'data dependent' communication. But we cannot repeat it for years. At some point it would not mean anything.
"An alternative is to give some guidance by communicating in a way that is conditional. I would have been comfortable saying, for instance: 'we will probably have to do more if the conflict doesn't end soon.' Now it seems to be ending."
Rate Hikes and Global Influences
No Discussion of 50 BPS Rate Hike in June
"We didn't have a discussion on 50, and I don't think it was necessary."
On Further Fed Hikes — Usual Channels
"If rates are higher in the U.S., it is going to pull investors there, and that pulls the part of the curve that we have less control over — the longer durations — and can have an impact on the exchange rate. Those are elements we use when we look at the general state of the economy."
Reporting
(Reporting by Francesco Canepa)
