ECB’s Former Vice President Says Inflation Goal Ideas Lack Merit

Paul Gordon

30 Jan 2020, 01:53 AM IST

(Bloomberg) --

The European Central Bank’s former vice president has weighed into the institution’s review of its inflation target, saying two of the key ideas on the table don’t stand up to scrutiny.

Vitor Constancio, whose term ended in 2018, said on Twitter that including housing costs in the measure of consumer-price growth could look like a trick to get the ECB artificially closer to its goal after years of falling short.

He also said a target range for inflation that starts lower than the current aim of “below, but close to, 2%” leaves the euro area exposed to the risk of deflation if there’s an economic shock. His comments were retweeted by the head of the ECB’s press office.

Both ideas are up for discussion under President Christine Lagarde as the ECB starts its first strategic review since 2003. While Lagarde has promised to reach beyond current policy makers for input, some former officials seem keen to have their say right away.

Former Austrian governor Ewald Nowotny published a policy brief this week that said the central bank’s credibility depends on a flexible definition of price stability. Former chief economist Peter Praet warned Lagarde this month that she risks disappointing the public if her wider ambitions -- such as incorporating climate change into policy -- don’t amount to much.