A measured European Central Bank response is appropriate to control inflation as policymakers assess how a second wave of the energy shock affects the economy, according to Chief Economist Philip Lane.

The economy proved surprisingly resilient to the initial surge in oil and gas following the Iran war, Lane argued in a speech Monday in Frankfurt. Renewed pressure poses upside risks to the inflation outlook as well as downside risks to growth and warrants close monitoring, he added.

“In addition to tracking the ongoing transmission of the first wave, it is essential to assess whether the second wave will operate more powerfully on both activity levels and inflation dynamics than the first wave,” Lane said. “We remain in the ‘middle path’ for monetary policy, in which a measured response is appropriate to keep inflation in check.”The ECB has raised interest rates twice to ensure inflation returns to its 2% target in the medium term. While policymakers including Lane say higher energy costs haven’t yet affected expectation, they remain on alert, with economists and financial markets expecting more tightening to come.

Lane argued that the inflation outlook depends not only on the duration, intensity and pass-through of higher energy costs, but also on additional forces including fiscal dynamics, artificial intelligence and overall financial conditions.

For now, AI-related investment are growing from a low base, keeping the macroeconomic impact contained, he said, adding that construction of data centers and related infrastructure isn’t strong enough to upward pressure on wages.