ECB’s Villeroy: On Average, We See No Risk of Inflationary Overheating

24 March 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said Wednesday that although the U.S. fiscal stimulus could lead to faster price increases there, there is no risk of inflationary overheating in Europe ‘on average’.

In an interview with French radio station Europe 1, Villeroy, who heads the Bank of France, said that ‘there is no inflationary risk in Europe’ but that ‘[t]he situation is a little different in the United States, because the recovery after Covid is more advanced and … the Biden administration just put into place an absolutely massive budget package, $1.9 trillion.’

‘Some economists say it’s oversized, it’s not up to me to judge’, he added. ‘But this support can provoke an acceleration of prices in the United States’ and there is thus a debate about whether such an acceleration would be temporary or sustained.

‘But the situation in Europe is completely different’, he said. Europe is only starting its recovery, French inflation is only 0.9%, and with the ECB undershooting its price stability target, it would keep interest rates low, he said.

As to the possibility of a sudden resurgence of inflation, Villeroy noted that the projections of the ECB as well as the Banque de France called for inflation of only a bit more than 1% the next two years.

Even if inflation temporarily spikes, ‘on average, we don’t see any risk of inflationary overheating’, he said. ‘And that’s very important; that means that we are going to keep interest rates low and financing conditions very favourable.’

In other comments, Villeroy characterised the recovery as a shift ‘from public support to private confidence.’