Inflation outlook highly uncertain: ECB

Euro zone inflation hit 5% in December, more than twice ECB’s target

VIENNA:

There is “a great deal of uncertainty” over how long inflation will remain well above the European Central Bank’s target of around 2%, ECB Governing Council member Robert Holzmann said in an interview with newspaper Die Presse published on Sunday.

The ECB has long held the view that inflation will decline this year from its current record high, an expectation its President Christine Lagarde repeated on Friday.

Euro zone inflation hit 5% in December, more than twice the ECB’s target, but the bank sees it back below 2% by the fourth quarter.

“It is not yet ruled out that that will happen. However, we also do not know whether inflation will stay at a higher level after all,” Holzmann, who is governor of the Austrian National Bank, told Die Presse.

“Is inflation therefore a mountain or is it becoming a high plateau? There is a great deal of uncertainty about that because it also cannot be reproduced very well by our models,” he told the Austrian newspaper. Second-round effects like wage increases would be decisive, he added and, like Lagarde, he said that for now there was no sign of a price-wage spiral, but much would depend on wage negotiations this year.

“Fundamentally there is therefore the danger of a wage-price spiral. I believe, however, that labour and employer representatives are acting very rationally and thoughtfully here,” Holzmann said. As part of its asset purchases, the ECB can only hold up to 33% of a euro zone country’s bond volume, and in some countries it is “very close” to that limit but not in Austria, he said.

 

Published in The Express Tribune, January 24^th, 2022.

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