ECB’s Schnabel: ‘We Continue to Expect to See a Strong Recovery’

21 August 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank still sees a strong economic recovery, Executive Board member Isabel Schnabel said Saturday.

In an interview with German weekly Focus, a text of which the ECB made available, Schnabel said that currently high German inflation did not bother her and that monetary authorities were more concerned in the medium term about too-low inflation.

‘We continue to expect to see a strong recovery’, she said. ‘Given the high level of vaccinations, another hard lockdown is unlikely, despite the current rise in incidence rates.’

Supply bottlenecks were ‘currently the major constraint’, she said. The solution lay in international support for the vaccination efforts of developing countries, she said.

Elevated inflation rates in Germany ‘are largely due to transitory effects’ as initial effects of the crisis reverse, she said. ‘[I]f you compare today’s prices with those before the pandemic, it doesn’t look all that dramatic. While we expect inflation to continue rising until the end of this year, especially in Germany, our estimate is that it will fall significantly as of next year.’

This implies that the ECB has no basis for a departure from its accommodative stance, she confirmed.

‘As surprising as it may sound to some – we are more worried about the inflation rate being too low in the medium term rather than too high’, she said. ‘This may change, of course, for example if trade unions were to negotiate higher wages.’

However, this ‘would also be a good sign from our point of view’, she added. ‘Increased demand on the back of higher real wages would bring us closer to our inflation target – which we have been falling short of for years – and help us escape the low interest rate environment.’