Omicron Could Send Inflation Either Way, ECB’s Muller Says
(Bloomberg) -- The omicron variant of the coronavirus could send euro-area inflation in either direction -- depending on how governments, companies and consumers respond, according to European Central Bank Governing Council member Madis Muller.
“If there are further lockdowns and sharp restrictions on the economy, demand could decline and more likely could result in downward pressure on inflation,” Muller said Tuesday in an interview in Tallinn. “On the other hand, if supply-chain problems, for instance, last longer due to omicron, there could be upward pressure on inflation.”
“Today it’s hard to say which way it will go,” he said.
European governments are racing to vaccinate their citizens against Covid-19 as omicron spreads across the continent. Some, including the new administration in Berlin, are considering tighter measures to prevent health systems from becoming overburdened, while the Netherlands already entered a new lockdown on Sunday.
Grappling with the fastest inflation since the creation of the single currency, the ECB last week forecast that consumer-price growth will slow to an average of 3.2% next year from its November rate of close to 5%.
Even with the drivers of that surge expected to fade, officials must keep an eye on whether inflation is becoming more entrenched, according to Muller.
“If inflation remains high for a long time, even though it is due to factors that appear to be temporary by their nature, the greater the danger that this inflation will increasingly be passed on to other products and services,” he said.
In Estonia, the economic recovery is driving prices higher at one of the fastest paces in the euro region. New projections released Thursday shows inflation in the Baltic country at 6.9% in 2022 -- more than three time the ECB’s 2% target.
“If inflation next year turns out to be even faster than forecast, for instance due to energy prices, I think that’s nevertheless a reason for re-evaluating whether there are additional factors that are more constant by nature.”
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