ECB’s Stournaras: ‘Central Banks Should Look Through This Temporary Jump in Inflation’

4 October 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Monday played down currently high inflation as a ‘temporary jump’ to be disregarded by monetary authorities.

In an interview with Global Finance Magazine, Stournaras, who heads the Bank of Greece, acknowledged that the recovery in the euro area should be ‘strong’ this year and next, driven by accumulated demand; fiscal spending including the NGEU; and foreign demand, in particular from the US.

Although output levels in the region would return to pre-pandemic levels by the end of this year, this masked ‘a significantly uneven pace of recovery’, he said.

The higher inflation now being seen ‘is expected to be largely transitory due to pandemic-related supply side bottlenecks and central banks should look through this temporary jump in inflation’, he said, calling for clear communication as ‘critical to shaping inflation expectations and safeguarding against premature tightening of financial conditions.’

ECB policy was ‘still appropriate’, he said. He urged ‘patience’ and ‘a persistently accommodative monetary policy stance’ and noted that the ECB’s new strategy endorsed the possibility of overshooting.

‘Once the economy shifts to a solid recovery and there are definite signs of a rise in inflation to its target on a durable basis, then we should proceed at a gradual adjustment, applying flexibly the tools at our disposal’, he said.

‘Uncertainty and risks surrounding the growth outlook remain high but overall balanced’, he said. ‘The epidemiological situation, geopolitical tensions possibly resulting in irregular migration inflows, the effects of climate change and private and public debt dynamics raise concerns and require continued vigilance.’

With respect to Greece, Stournaras noted expectations of a strong rebound ‘in the coming quarters’ and said the ‘milder-than-expected recession in the first quarter of 2021 and incoming data for the second quarter make us even more optimistic than before.’

The pandemic remains the biggest risk factor, he said. ‘Although the vaccination programme is well on track, the spread of the virus mutations is a source of uncertainty’, he added.