Frankfurt — The European Central Bank has the right to maintain easy monetary policy as inflation is set to fall after a “temporary boost” due to possible supply stagnation next year. The Monetary Fund said Thursday.
Some support from ECB Governor Christine Lagarde, as she struggles to convince investors that she is not trying to raise interest rates in the face of record inflation. Could bring relief.
Washington-based institutions said historical data suggest that wages in the euro area will rise only slightly, with inflation reaching 5.1% last month falling below the ECB’s 2% target. ..
“Once the pandemic subsides, inflation is expected to be slightly below the European Central Bank’s target,” read a blog post signed by Managing Director Cristalina Georgieva and two other sources. ..
“The ECB has properly decided to maintain an accommodative financial stance until the medium-term inflation target is achieved, but adjusts the course if high base inflation proves to be more durable than expected. Stay flexible. “
Lagarde, who heads the IMF, the predecessor of Georgieva, reiterated on Monday that the ECB’s massive bond purchases and changes to the very simple policy of negative interest rates would be gradual.
But she couldn’t convince the investor. Investors have set a rate hike price equivalent to 50 basis points by the end of the year.
The IMF’s post was based on a new paper that estimates that Eurozone GDP was 2% higher last year, without supply constraints caused by blockades and all shortages from containers to skilled workers.
According to the IMF, the supply shock accounted for half the increase in producer price inflation in the euro area, excluding energy prices last year.
The epidemic of the Omicron variant of the coronavirus warns that bottlenecks are longer than expected and may last until 2023, a challenge for central bankers seeking to help the economy while curbing inflation. increase.
“Stabilizing medium-term inflation expectations despite temporary inflation, such as supply turmoil and rising energy prices, is the key to managing this trade-off,” the IMF said. ..