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Monetary policy: ECB director Schnabel: upside risk for inflation

Isabel Schnabel

“We should take a risk management approach so that we can react quickly if there are signs that inflation is consistently above our two percent target.”


(Photo: dpa)

Frankfurt According to the European Central Bank (ECB), consumers in the euro zone will have to live with higher inflation rates for a while. “We know that inflation will be high for a while, but also that it will decrease over the course of the next year. We are less sure about how fast and how strong the decline will be, “said ECB board member Isabel Schnabel in an interview published on Wednesday by the French daily” Le Monde “.

The central bank wants to ensure stable prices in the currency area of ​​the 19 countries with inflation of 2 percent in the medium term. In the coming year, Europe’s monetary authorities are expecting an annual average price increase of 3.2 percent in the euro area, mainly due to energy prices. The ECB predicts 1.8 percent for 2023.

“We are well aware of the uncertainty surrounding our inflation forecasts. There is an upside risk, ”said Schnabel in the interview conducted on December 16. “We should take a risk management approach so that we can react quickly if there are signs that inflation is consistently above our two percent target.”

Higher inflation weakens purchasing power. Consumers can then buy less for one euro than before. The ECB explains the jump in inflation primarily with special factors that should weaken again in 2022: for example, the rise in oil prices after the corona shock and delivery bottlenecks as a result of increased demand. In addition, the withdrawal of the temporary VAT cut is currently having an impact in Europe’s largest economy, Germany.

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Critics accuse the ECB of fueling inflation with its flood of money, which it actually wants to keep in check. At the most recent meeting of the Governing Council, the central bank’s highest decision-making body had sent the first signal that the ultra-loose monetary policy was coming to an end: the ECB will only purchase additional securities as part of its PEPP corona emergency program until the end of March.

However, the central bank is still investing billions in government bonds and corporate papers: The general APP purchase program is being temporarily increased. Funds from expiring PEPP papers are to be reinvested by at least the end of 2024.

“We have taken an important step towards normalizing our monetary policy,” said Schnabel. “This has to be a gradual process – it cannot all happen at once. If we react too quickly, there is a risk that the upswing will be stalled by an overly abrupt tightening of financing conditions. “

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Reference-www.handelsblatt.com

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