Director of European central bank (ECB), Isabel Schnabel reinforced the argument that the recent rise in inflation in the euro zone is a temporary phenomenon. “Many of the factors that caused the increase in inflation this year will probably disappear in 2022”, he projected, in a speech during a virtual event on Saturday.
The German economist, however, assesses that the recovery from the crisis caused by the coronavirus represents an opportunity for the European bloc to “escape” from the environment of low inflation and economic growth that dominated the scenario in the last decade. “For this to happen, continued fiscal and monetary support is needed in order to stimulate the nascent recovery,” he said.
Schnabel attributed the rise in prices in recent months to several variables, including the appreciation of commodities and bottlenecks in the production chain. According to her, the effectiveness of monetary policy in responding to these movements is limited, since they are considered supply shocks, not demand.
According to ECB estimates, consumer inflation is expected to rise from 1.9% in June to 2.6% in the last quarter of this year, before falling to 1.5% in 2022 and 1.4% in 2023. For Schnabel, there are reasons to believe that these predictions are “plausible”, mainly because of the end of the weak basis of comparison effect. “Uncertainties around the inflation scenario, however, remain exceptionally high at the moment,” he pondered.
Among the risks, the official cited the dissemination of the delta variant of the coronavirus, which is already threatening the European summer tourist season. There is also the possibility that the imbalances between supply and demand will become more persistent, leading producers to pass on the increase in cost to prices for a longer period of time.
Anyway, the member of the Governing Council assured that the institution intends to wait for signs of sustained high inflation before changing monetary policy. This, according to her, should make inflation stay above the target of almost 2% for a longer period. “This is a necessary and proportional requirement to establish the conditions to escape low inflation,” he concluded.