Stournaras Urges ECB Caution in Assessing Spike in Inflation

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The European Central Bank shouldn’t over-interpret the spike in euro-area inflation as it prepares for a policy decision next week, according to Governing Council member Yannis Stournaras.

“According to most estimates, the recent jump in inflation is due to temporary factors related to various supply-side bottlenecks caused by the pandemic,” Stournaras, the Bank of Greece governor, said in a Bloomberg interview on Wednesday in the aftermath of August data showing the fastest annual price growth since 2011. 

With the ECB’s next decision due on Sept. 9, officials are laying out arguments for the future course of stimulus. Their differing views signal a potentially heated debate between hawkish-leaning members of the Governing Council and those who insist that surging infections and supply-chain bottlenecks could still derail the rebound. 

The ECB has taken a more cautious approach on withdrawing support than other global central banks such as the Federal Reserve, which may wind down stimulus later in 2021. 

While President Christine Lagarde warned in July against any premature withdrawal of aid to the economy, she and her colleagues are now confronting inflation running at 3%, the most in a decade and much more than the 2% they aim to achieve. 

“Wage developments and unit labor costs which determine the core of inflation do not show the same volatility as headline inflation,” said Stournaras, who is one of the Governing Council’s longest-serving members and a former Greek finance minister. “On this evidence, I would advise caution regarding the course of inflation relative to our medium-term target.”

The ECB accelerated the pace of pandemic purchases earlier this year to ensure the recovery wouldn’t be weighed down by tighter financing conditions. In contrast to Stournaras, hawks such as Klaas Knot and Robert Holzmann now want it to slow down bond-buying in the fourth quarter, reflecting the region’s improving economy. 

They also argued in separate interviews on Tuesday that the improved outlook should allow the pandemic program -- also known as PEPP -- to terminate in March as currently planned. 

“PEPP has a clearly delineated objective -- repairing the damage that the coronavirus has inflicted on the inflation outlook,” Knot said. “This goal is within reach.”

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