Lane Says Pandemic Shock Only First Step of ECB’s Challenge

The European Central Bank will still have more work to do to boost inflation after the pandemic as increased price pressures this year will not be sustained, chief economist Philip Lane wrote in a blog post.

“The medium-term outlook for inflation remains subdued and closing the gap to our inflation aim will set the agenda for the Governing Council in the coming years,” he said. “Even after the disinflationary pressures caused by the pandemic have been sufficiently offset -- with a lead role for the pandemic emergency purchase program -- we will have to ensure that the monetary policy stance delivers the timely and robust convergence to our inflation aim.”

Lane Says Pandemic Shock Only First Step of ECB’s Challenge

Purchasing managers surveys published Thursday highlighted the mounting inflationary pressures in the euro-zone, with input and output costs rising at the fastest pace in a decade. While manufacturers are experiencing surging demand for goods, they’re also running into product shortages and delivery delays as the pandemic disrupts supply chains.

Bond yields have jumped in a global reflation trade on the back of the U.S. economic rebound, yet the euro zone is bogged down in extended virus restrictions and a slow vaccination rollout. That’s forced the ECB to ramp up the pace of its emergency bond-buying program in recent weeks to protect the euro-area economy

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In an interview with Bloomberg Television on Wednesday, ECB President Christine Lagarde said policy makers won’t shy away from using all their powers should investors try to push bond yields higher.

One of Lane’s Governing Council colleagues, Lithuania’s Vitas Vasiliauskas, expressed a similar sentiment on price growth, arguing it’s “still too far away from the 2% goal in the medium term.”

“I certainly don’t believe Armageddon scenarios that we sometimes hear how inflation will jump extremely high,” he said in an interview published by the Baltic News Service. “The euro area doesn’t project high inflation. It should essentially stay about the same as now with some bouncing throughout the year.”

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