ECB May Hit Inflation Aim Sooner Than Some Expect, Schnabel Says

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European Central Bank Executive Board member Isabel Schnabel suggested euro-area inflation might be closer to meeting the institution’s goal than some anticipate.

At the same time, she argued the Governing Council will take its time before tightening monetary policy to ensure price developments are entrenched.

Recent inflation dynamics are moving “in a much better direction,” Schnabel said during an online discussion. “I’m actually much more optimistic that we will be able to reach our inflation aim, maybe sooner than some people expect at the moment.”

While prices have climbed recently after years of falling short, most of those increases will prove temporary. For 2023, the ECB predicts inflation of just 1.4% -- far below its new goal of 2%.

President Christine Lagarde presented the results of the institution’s strategy review last week. They include the option to tolerate inflation rates “moderately” above the target for a “transitory period.”

Schnabel said the ECB would need to have “high confidence” in seeing 2% inflation “in a more durable fashion” before considering a policy shift.

“If one hikes immediately if one sees a 2 somewhere, then it’s not surprising that the 2 is never reached,” she said. There are currently no signs of second-round effects on wages, and the ECB must avoid any premature tightening of policy, she added.

Schnabel also said the euro-area economy is seeing a strong recovery, although the delta variant of the coronavirus poses a risk that’s difficult to assess.

©2021 Bloomberg L.P.

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