EZB director Isabel Schnabel has warned of the consequences of a hasty reaction by the European Central Bank (ECB) to increased inflation. “A premature tightening of monetary policy in response to a temporary rise in inflation would be poison for the current upswing and would do even more harm to those who are also suffering from the current rise in inflation,” she said on Monday at the Baden-Baden business meeting. In August, inflation in the euro area was three percent, well above the two percent mark that the ECB is aiming for in the medium term.
“However, we consider a permanently excessive inflation, as it is feared by some, to be very unlikely in the euro area due to the continued low inflation expectations,” added Schnabel. In all probability, inflation will weaken again noticeably in the coming year. In their latest forecast, the ECB economists assume that the inflation rate will reach 2.2 percent this year. They expect an inflation rate of 1.7 percent for 2022 and 1.5 percent for 2023.
In view of the economic recovery in the euro area, the ECB recently decided to moderate the pace of its large-scale emergency bond purchases. The purchases as part of the crisis bond purchase program PEPP are to continue until at least the end of March 2022.