Muller Says ECB Review Should Start With Inflation Deep Dive

(Bloomberg) --

The European Central Bank should kick off its strategy review by looking into the causes of low inflation before tweaking the target, according to Madis Muller.

The Estonian member of the Governing Council said the ECB needs to understand to what extent its policies can impact inflation, when prices are increasingly shaped by global pressures. The official measure that policy makers are targeting may also fail to capture important costs, such as the cost of housing, he said.

“That should form the starting point of the discussion,” Muller said in an interview in Frankfurt on Wednesday. “For me that comes before how we go about voting or targeting inflation.”

Muller -- the youngest member of the Governing Council -- is one of several policy makers to present his expectations for the review that President Christine Lagarde wants to complete in the course of next year. She promised to leave no stone unturned as the ECB seeks to understand why years of massive stimulus have so far failed to bring inflation to its goal.

In his farewell speech on Wednesday, Executive Board member Benoit Coeure said the ECB should clarify that it aims to achieve 2% inflation, and argued in favor of a tolerance band around the goal.

Muller said he saw “a lot of merit” in Coeure’s argument, which also included a call for a regular reassessment of the official measure of inflation, including considering how to accurately reflect living costs.

Muller also said the review should openly discuss possible detrimental side effects of the ECB’s negative rates, a growing concern among some of his colleagues. More than half a decade of sub-zero policy has led to complaints from banks as well as savers in countries like Germany.

“I’d really like to listen to all the arguments,” the Estonian said. “It’s dangerous to just decide to very quickly change the target.”

©2019 Bloomberg L.P.

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