ECB’s Holzmann: Naturally Suffering Sleepless Nights Because of Inflation

5 November 2021

By David Barwick – VIENNA (Econostream) – European Central Bank Governing Council member Robert Holzmann on Friday said he ‘naturally’ had ‘sleepless nights’ on account of euro area inflation developments.

In comments to journalists, Holzmann, who heads the Austrian National Bank, said the question was ‘how to find out better and faster’ where inflation was headed and ‘which data we can rely on’ for this.

Although inflation is widely seen as subsiding back below 2% at the end of the ECB’s planning horizon, forecasts are based on models that ‘can’t reflect the new reality’, he criticised, as they are not prepared to deal with an economic collapse of the sort triggered by the pandemic.

What will happen with delivery delays and other supply side constraints is an open question, he noted. Wage hikes are also ‘one of the main points’, he said. Relevant developments are ‘ex ante unpredictable’, he said.

If inflation next year ‘doesn’t go down or goes down shallowly, then we have a problem’, he said.

That there would be no rate hike next year is consistent with the ECB’s current forward guidance, he said. However, ‘it could be that the framework conditions change, we don’t know what will happen in Q1 and Q2’, he said. ‘But at the moment there is no reason to act.’

It was important to obtain additional information, he emphasised. Though this didn’t necessarily imply a change to the ECB’s forward guidance, the conclusions to be drawn from it could change with new data, he said.

For that reason, he explained, he would have preferred greater focus on the need to monitor developments and ‘drive by sight’.