The ultra-low inflation seen in the euro zone until recently is unlikely to return even after the pandemic is over, European Central Bank’s Chief Economist Philip Lane said, citing changes in the global economy among other factors.
Lane had dismissed the notion of a new era for inflation until recently but he has been revising his view, setting the stage for a policy shift at the ECB after nearly a decade of ultra-low interest rates and massive bond purchases.
“There are several factors indicating that the excessively-low inflation environment that prevailed from 2014 to 2019 (a period over which annual inflation averaged just 0.9%) might not re-emerge even after the pandemic cycle is over,” Lane told an MNI event.
He credited the unprecedented economic support deployed by euro zone governments and the ECB itself in response to the coronavirus pandemic, but also structural changes such as fewer exports by China.
The ECB is under market pressure to raise rates on bank deposits, currently at negative 0.5%, in the face of stubbornly high euro zone inflation. This hit 5.1% in January, well over twice the ECB’s 2% target.
Published in The Express Tribune, February 18th, 2022.
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