▷ Behind the curve, commentary on the ECB by Mark Schrörs


28.10.2021 – 19:49

Stock exchanges newspaper

Frankfurt (ots)

The European Central Bank (ECB) is unwaveringly sticking to the narrative that the current strong rise in inflation is temporary and therefore no reason for a clearer withdrawal of the ultra-loose monetary policy – and is almost unaffected by any nasty surprises on the price front and any warnings to the contrary. As understandable as the reliance on its own analyzes may be, the ECB should not pretend that it has eaten the wisdom with spoons. The ECB’s argumentation and course seem increasingly stubborn.

Ironically, on the day of the ECB’s interest rate decision, there was some alarming inflation news: In Germany, inflation climbed to 4.5% in national terms in October – the highest level since 1993. In Spain it exceeded a 29-year period at 5.5% -High – all expectations. And the latest ESI survey by the EU Commission reveals an all-time high in company sales price expectations and the highest inflation expectations among consumers since the end of 1992. The rather one-sided view of the ECB on the risk of inflation being too low in the medium term has increasingly fallen out of time.

ECB chief economist Philip Lane is now arguing that the ECB must counterbalance the current inflation debate. In fact, some inflation hysteria is exaggerated, and some interest rate bets in the financial markets appear excessive. But the ECB must not downplay the existing dangers of inflation or lull the markets. If ECB boss Christine Lagarde now at least admits that inflation will remain high longer than initially thought, it is also a reminder that the ECB forecasts in the past have not always been extremely accurate. Caution is also advisable with regard to second-round effects. Wage pressure may still be weak at the moment. But that can change quickly. And all the faster if the impression solidifies that the ECB is not taking decisive countermeasures against inflation if necessary.

Unlike the ECB, the US Federal Reserve will probably give the go-ahead next week for the shutdown of its billion dollar bond purchases (“tapering”). And the Bank of England is openly toying with a rate hike this year. Lagarde is right when she says that such comparisons are limp. But it does not seem that the situation in the USA and Great Britain is so fundamentally different from that in the euro area that it justifies a diametrically different course. The ECB is increasingly acting “behind the curve”.

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