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ECB braces for sticky inflation

Reuters . Frankfurt
24 Sep 2021 00:00:00 | Update: 24 Sep 2021 01:08:20
ECB braces for sticky inflation

European Central Bank policymakers are bracing for inflation to exceed the bank’s already raised estimates, paving the way for it to end its emergency bond purchases in March, sources involved in the discussion said.

The ECB, which plans to make a decision on the future of its Pandemic Emergency Purchase Programme in December, expects inflation to ease back in 2022-23 after this year’s abnormal bounce as the economy goes back to its pre-pandemic path.

But conversations with eight members of the ECB’s Governing Council who asked not to be named showed that many, if not most, at the Sept. 9-10 policy meeting already felt the new forecasts, which put inflation at 2.2 per cent this year, 1.7 per cent next year and 1.5 per cent in 2023, were too low.

Data since then has strengthened their concerns that inflation could be close to or even above the ECB’s 2% inflation target next year, a potential headache since ECB policy is predicated on inflation undershooting the target for years to come.

The sources pointed to supply bottlenecks that were lasting longer than expected, shortages of staff extending beyond the hospitality sector and a steady stream of cash being poured into the economy from private savings and official stimulus programmes - including the ECB’s own.

Most sources agreed that higher inflation added to an already strong case for ending PEPP, which is worth 1.85 trillion euros, as scheduled next March, although the debate was barely starting.

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