ECB’s Kazāks: Some Upside for the Inflation Outlook over the Medium Term

17 September 2021

By David Barwick – FRANKFURT (Econostream) – The increase in asset purchases under the European Central Bank’s pandemic emergency purchase programme (PEPP) is envisioned as temporary, but this depends on how the situation evolves, according to ECB Governing Council member Mārtiņš Kazāks.

In an interview with Bloomberg published Friday, Kazāks, who is Governor of Latvijas Banka, said that ‘[i]f Covid does not surprise on the negative side, there is some upside for the inflation outlook over the medium term.’

He indicated that any upside surprise would not be too large: ‘I am talking about decimals here.’ According to Bloomberg, he did not anticipate reaching 2% in the medium term.

With reference to the newly revised staff HICP forecasts, he said that ‘[t]here is perhaps some upside for those numbers to be revised up in the following forecasting rounds. I agree with the current outlook, but I would say that the balance of risks for inflation are somewhat on the upside.’

‘We hear some anecdotal evidence that there could be some wage pressures down the road, but we have not seen that yet in the data’, he was quoted as saying. ‘There is no reason to expect that inflation would be permanently very hot. If at some point inflation will be significantly higher than our strategy and monetary-policy mandate, then of course we will know how to react.’

As to winding down the ECB’s pandemic emergency purchase programme (PEPP), there is no hurry to discuss this, he said, but an update will be forthcoming ‘as soon as it is reasonably feasible’. He noted that ‘uncertainty is still high and it is reasonable to maintain flexibility.’

‘At the current moment, monetary support is still necessary, fiscal support is still necessary’, he said. ‘But as the economy improves, the support needs to be withdrawn so that when the next crisis comes, we have again room to intervene.’