ECB has the least worrying inflation problem

Christine Lagarde is facing a problem her predecessors at the European Central Bank would have welcomed: too much inflation. This will embolden those who want the Frenchwoman to wind up her emergency monetary stimulus. But long-term price pressures are less of a headache than for the ECB president’s peers in the United States and United Kingdom.

Euro zone consumer prices rose 3.4 per cent in September from a year earlier, the fastest pace since 2008, an early official estimate showed on Friday. That’s well above the ECB’s 2 per cent target and means rate-setters will be at loggerheads about how much longer to use the central bank’s ultra-flexible bond-buying scheme, launched at the height of the pandemic last year. National differences add to the tension: inflation is running at 4.1 per cent in Germany, a less breakneck 2.7 per cent in France; and only 1.3 per cent in Portugal.

As with the United States and the United Kingdom, where inflation is also rising faster than central bank targets, pandemic-related distortions are partly to blame. Prices took a big hit last year, accentuating the jump now, and supply-chain snafus are affecting all three economies. Like Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey, Lagarde expects these factors to fade.