The euro area economy is growing faster than expected, which the European Central Bank (ECB) will take into account in its new forecasts and in its monetary policy decisions. This was stated by the Vice-President of the ECB Luis de Guindos in an interview with the Spanish newspaper El Confidencial. The ECB will discuss its monetary policy next Thursday, when it will also publish updated economic forecasts. According to the latest words from the German member of the Governing Council, the ECB should not overlook the danger that inflation will accelerate more than it currently assumes.
Some ECB officials have called on the bank to decide next week to curb large-scale bond purchases to boost economic growth. De Guindos did not comment directly on the timing of the start of the cut in bond purchases, but noted that the strong economic recovery created room for monetary policy normalization. “If inflation and the economy are recovering, then logically comes the gradual normalization of monetary and budgetary policy,” said the banker.
In its flash estimate, Eurostat said inflation in the eurozone climbed to three percent in August, the highest level in almost a decade. Price growth thus significantly exceeds the ECB’s long-term target of two percent. In July, inflation in the euro area was 2.2 percent.
The ECB has so far stated that temporary factors are behind the rise in inflation . However, De Guindos warned that rising inflation could be partly more permanent. Similar concerns have been expressed by the head of the German central bank, Jens Weidmann, a member of the ECB’s Governing Council. “If these temporary factors lead to higher inflation expectations and faster wage growth , it could mean a significant increase in the inflation rate in the longer term,” he said.
However, the head of the Greek central bank, Jannis Sturnaras, who is also a member of the ECB’s Governing Council, told Bloomberg that the rise in inflation in the eurozone still seems only temporary. He added that from the August rise in inflation at three percent, too great conclusions should be drawn.
Dutch central bank governor Klaas Knot announced yesterday that the inflation forecast for the eurozone had improved enough to justify an immediate slowdown in central bank stimulus, the end of the emergency bond purchase program next March and then a return to pre-crisis discipline. “I would expect a decision that should not be incompatible” with the already announced March termination of the bond purchase program, the Dutchman said in an interview before the ECB meeting next week.
According to Tuesday’s reports, his Austrian colleague Robert Holzmann believes that the ECB should discuss at its forthcoming meeting how it will move from emergency incentives provided during the coronavirus crisis to monetary support to help it meet its inflation target.
Sources: ČTK and Bloomberg
