Housing Costs Muddy ECB’s Move to Clearer Inflation Goal

Housing Costs Muddy ECB’s Move to Clearer Inflation Goal

The European Central Bank helped remove some of the ambiguity around its policy objectives by adopting a simple 2% inflation target in its strategy review, but plans to include the cost of owner-occupied housing in the measure add a new layer of uncertainty that could complicate the task of achieving the goal in the years ahead. Bloomberg Economics estimates suggest including OOH may raise headline inflation by 0.1 percentage point on average and perhaps more in the coming years. Expectations of a future shift to a new, higher reference rate could create a fresh messaging challenge as the ECB seeks to hit its 2% target.

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