ECB: The risk of a slow response to inflation is increasing

Inflation is more persistent than originally predicted by the ECB and is no longer expected to fall below 2% by the end of 2022. But not in the medium term, ie by the end of 2023 2%.

This was stated in an interview with FT by ECB Executive Board member Isabel Schnabel, noting that the ECB will have to revise its inflation forecasts and strategy.

As he stated, the ECB should move faster towards normalcy, compared to the lax policy today, without, however, referring to a strict monetary policy, confirming the report of Capital.gr last week that spoke with two ECB officials.

However, as Ms Schnabel pointed out, there are two risks to the decision to review the policy. The risk of reacting sooner than necessary and the risk of delay. Under current conditions, the risk of delay is increasing.

As he explained, the following trends are currently emerging that maintain inflation and revise the forecasts upwards in the medium term:

First, energy prices continue to rise.

Second, employment is at historically low levels and, according to ECB communication with companies, there is a shortage of staff to increase production and meet demand. Therefore, although there is a tendency to maintain wages, staff shortages and the need to meet demand (which also increases prices) can lead to wage increases.

Third, supply problems do not seem to be normalizing as quickly as expected.

Fourth, there are no increases in producer prices.

However, he did not talk about raising interest rates, but indirectly but explicitly referred to the bond-buying program, as well as the need to integrate housing costs into the measurement of inflation.

Leonidas Stergiou

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