ECB’s de Guindos: Inflation Without Doubt Going to Descend Starting 2022

29 November 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Monday said that euro area inflation would definitely ease starting next year.

In a speech at an event in Madrid, de Guindos said that the euro area economy, though in ‘clear recovery’, had ‘lost a little momentum’ in the fourth quarter, but that nevertheless ‘it’s going to be a good year’ in terms of growth. Projections indicated that the euro area would ‘grow with intensity again next year’, he said.

‘Perhaps the most worrying element is ... inflation developments’, he said. However, high inflation was a temporary phenomenon, ‘because the factors behind it are also transitory in nature’, he said. Inflation was therefore ‘without doubt going to descend starting in the coming year.’

‘In any case, the economic situation is marked by enormous uncertainty’, he observed.

‘Short-term risks to the European financial system have fallen, they have fallen quite a lot as a consequence of the recovery’, he said. ‘But on the other hand ... we find that the medium-term vulnerabilities of the European financial sector have increased’, among them ‘very elevated’ asset prices.

Sovereigns have been able to finance themselves at ‘very low’ interest rates and have succeeded in extending average maturities, he observed.

‘However, any shock that takes place in the financial sphere, in the real economy sphere, or in the pandemic sphere, which may affect growth or financial conditions, may lead to a re-pricing of sovereign risk, which is particularly important and sensitive for vulnerable countries’, he said, noting the risk of fragmentation.

Policy support should be withdrawn gradually and become more targeted, he said. ‘On the other hand, vulnerable countries will have to put in place and announce credible medium-term fiscal consolidation plans’, he added.