In a reiteration of the now-well-known ECB stance / inflation view, de Guindos said the current phase of higher inflation, which in part reflects rising energy prices and supply constraints, could last longer than expected only a few months ago. Supply-side shortages may dampen activity while pushing prices higher, adding to uncertainty in the outlook for growth and inflation, he said.
De Guindos said rising energy costs are hurting growth by limiting the purchasing power of households. To avoid the materialization of the medium-term risks that we have identified, he added, it is essential to maintain the dynamism of the recovery and avoid scenarios that could jeopardize our objective of price stability. To do this, the bank must continue to guarantee favorable financing conditions.
Market reaction
De Guindos’ comments on inflation are nothing new, but his comments on the need to maintain favorable financing conditions to ensure that the economic recovery continues could be interpreted as moderate. EUR / USD has been gradually retreating lower in recent trading and recently broke out to new year-to-date lows around 1.1420. The dovish message from the ECB may be playing a role, although stronger than expected US manufacturing survey data released earlier in the session is likely to weigh on the pair as well.
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