ECB’s Guindos Says ‘Reality Check’ on Inflation Coming Next Year
European Central Bank Vice President Luis de Guindos said 2022 will prove that the current bout of elevated inflation is temporary.
“The reality check is going to be the evolution of inflation next year,” Guindos said Wednesday in a Bloomberg TV interview. “If inflation starts to go down, the views of the central banks will be reassured and reaffirmed. If you look at the drivers, the transitory nature of these drivers of inflation are quite clear and are going to become tangible and evident next year.”
Euro-area inflation is the fastest since 2008, fueled by higher energy costs, supply-chain disruptions and other pandemic-related effects. While many economists see it easing back below target in 2023, surging prices are causing alarm in some corners of the region. Officials say there’s a risk that price growth could be stronger than foreseen.
Guindos acknowledged that “the decline and the intensity of the slowdown in inflation will not be as intense and as rapid as we projected only some months ago.” The ECB must be “very attentive” to wage negotiations so large salary increases don’t make faster inflation more permanent, he said.
The ECB is gearing up for a decision about the future of its stimulus measures in December, little more than three months before a 1.85 trillion-euro ($2.1 trillion) pandemic asset-purchase program is scheduled to end.
As inflation readings overshoot forecasts, investors have started to position for an interest-rate hike in 2022 -- expectations the central bank has sought to damp.
“My personal view is that we’re not going to see a rate increase in 2022,” Guindos said. “We’re data dependent. We’ll see what happens over the next months with the evolution of the economy, the evolution of inflation, but my personal view is that it’s going to be quite unlikely.”
Earlier Wednesday, the ECB warned that increasingly stretched prices in property and financial markets, risk-taking by non-banks and elevated borrowing pose threats to euro-area stability.
While near-term risks have dissipated amid a strong economic recovery, vulnerabilities are accumulating with potentially grave consequences down the line, it said in its Financial Stability Review.
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