ECB Must Be Ready to Act If Inflation Entrenched, Says Makhlouf
European Central Bank Governing Council member Gabriel Makhlouf said policy makers must be ready to respond to persistently higher inflation that could result from lasting supply bottlenecks.
“We must be very vigilant of the risks out there,” the governor of the Irish central bank said in a Bloomberg TV interview. Shortages in the manufacturing sector that are pushing up prices could “potentially” lead to faster inflation for longer than anticipated if they end up causing wages to rise, he said.
“That’s the risk that we at the ECB need to be very cautious of and very aware of and ready to respond to if it happens,” Makhlouf said. “Right now I don’t think we should be looking to raise rates or respond to transitory inflation.”
While price growth has spiked substantially above the ECB’s goal, President Christine Lagarde on Tuesday blamed the rebound in energy prices from 2020 and frictions from supply-chain bottlenecks. She said “the key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term.”
ECB officials are determined to wait until December to decide on the future course of monetary policy. The bank’s 1.85 trillion-euro ($2.2 trillion) pandemic purchase program is scheduled to expire at the end of March or when policy makers deem the crisis phase to be over, and the focus has shifted to how an older bond-buying plan will have to be adjusted to safeguard the recovery.
The crisis program “was set up for an emergency at the start of the pandemic. As we see the emergency disappear there are logical consequences to that particular program,” Makhlouf said. “On the other hand there’s a long discussion to be had at the ECB, there’s a lot of uncertainty around with what’s happening in economies.”
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