ECB’s Villeroy Says Supply Problems Are Pushing Up Prices

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Supply constraints are pushing prices up more than the European Central Bank expected, even as the impact will likely be temporary, Governing Council member Francois Villeroy de Galhau said.

“There are supply difficulties that will push inflation higher than we thought in the short term,” Villeroy told executives at the annual conference of business federation Medef. “But we continue to think and hope that these supply difficulties are temporary given our experience of past recoveries.”

The disruption of supply chains across the world is affecting everything from car production to fast-food sales, damping confidence and threatening the economic recovery. For the ECB, sustained upward pressure on prices could raise doubts over its expectation that stronger inflation this year would be temporary and not force a rethink of policy.

While the French economy faces other challenges, including hiring difficulties, the outlook for this year is improving after a strong first half. Speaking on the outskirts of Paris, Villeroy said the central bank may raise its current 5.75% growth forecast next month to reflect the strength of the rebound from lockdowns over the summer. 

ECB’s Villeroy Says Supply Problems Are Pushing Up Prices

The central bank also expects renewed outbreaks and new variants of Covid-19 to have little impact on the economy as businesses have learned to adapt and there is now a higher rate of vaccination than in other regions. 

“If delta and variants have an influence on the European and French economies that will be indirect from a slowdown in growth in Asia or even the U.S.,” Villeroy said.

He also told the business community at the conference it can “count on the ECB and our monetary policy to remain supportive of economic activity in this phase.” 

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