ECB’s Holzmann Clings to Hope Inflation Spike Will Fade

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

European Central Bank Governing Council member Robert Holzmann said that he and colleagues need to be wary of assuming that consumer-price increases won’t last at a time when supply bottlenecks are likely to persist for a while.

“Definitely for the time being we cling to the hope that the current inflation spike will be transitory,” Holzmann told an online conference. “Nowadays we have to be a bit more careful, because it becomes clear that the supply restrictions and the created increases in the prices of a number of important inputs may remain for some time.” 

Holzmann, who heads Austria’s central bank, is among the ECB’s most hawkish policy makers and has also called for an end to the pandemic stimulus program next year. His comments on Tuesday point to a persisting rift among officials on the outlook for consumer prices.

Euro-area consumer prices rose 3.4% in September, the highest rate in 13 years. The ECB expects inflation to peak later this year before a slowdown in 2022, with price growth projected to undershoot its 2% target in the medium term. President Christine Lagarde last week called the current spike “largely transitory” and cautioned against overreacting.

But several policy makers have also expressed their concern that inflation will turn out higher than projected. A key factor that could entrench elevated rates for longer would be rising wages that in turn risk setting off further price increases.

Still, Holzmann’s French counterpart, Francois Villeroy de Galhau, attempted to allay fears when he spoke to lawmakers in Paris.

“Let’s have our eyes open, but remain cool headed -- let’s be vigilant, but not feverish,” he said. “Most of this spike in 2021 is still temporary.”

©2021 Bloomberg L.P.