ECB’s Lane: Current Inflation Situation ‘Very Unusual and Temporary’

8 November 2021

By David Barwick – FRANKFURT (Econostream) – The current situation with respect to euro area inflation is highly unusual and will not last, European Central Bank Chief Economist Philip Lane said on Monday.

In an interview with Spanish daily El País, Lane said that the slowdown of growth in some countries did not pose a threat to the recovery, which he insisted would be strong in 2022.

Despite now being ‘unexpectedly high’ as a consequence of the strength of the global recovery, inflation would subside next year and remain ‘too low’ over the medium term, he said. ‘[T]his period of inflation is very unusual and temporary, and not a sign of a chronic situation. The situation we are in now is very different from the 1970s and 1980s.’

With regard to wage developments, the ECB ‘will look out for unsustainable patterns that might lead to pressures that are undesirable from an inflation perspective’, he said. ‘But let me emphasise: we don’t see this right now. It’s more of a risk factor that we need to take a look at, rather than something where we see any evidence building.’

The ECB will disregard short-term inflation volatility and set monetary policy to get medium-term price growth to 2% stably, he said, and would be ‘sufficiently patient so as not to overreact to a temporary increase in inflation.’

Lane rejected the idea that the ECB was engaged in tapering, which he said was not even under discussion. The ECB can recalibrate asset purchases, but ‘is nowhere near a situation where we bring asset purchases to an end’, he said. ‘The situation is completely different to that of some other countries.’

The level of purchases is ‘driven by the inflation outlook’, he said. ‘We do care very much about financing conditions, but we assess these over a longer horizon than in any given week. That there has been volatility in the last week or two is not a determining factor.’

The fact that member states are recovering from the crisis at different rates ‘in itself is not a threat to the recovery’, he said. ‘It is just a question of time, and any dips that happen now will be balanced out by improvements later on.’

Far from being at an end, ‘growth will be pretty strong in 2022’, he said. Not only will bottlenecks resolve, he said, but ‘[t]here are other factors that make us confident that we will recover quite well over the next year or so, such as the savings that people have accumulated during the pandemic, the Next Generation EU fund, particularly for a large recipient like Spain, and the high vaccination rates.’