They Said it - Recent Monetary Policy Comments Made by ECB Governing Council Members

11 February 2022

By David Barwick – FRANKFURT (Econostream) – The following is a reasonably complete compendium of the most recent comments made by European Central Bank Governing Council members with respect to monetary policy. Updates are made on a periodic basis.

The current version supersedes that published on February 04 and includes comments from (those whose name is in bold have commented since the previous version):


Centeno (Banco de Portugal)


de Cos (Banco de España)


de Guindos (ECB)


Herodotou (Central Bank of Cyprus)


Holzmann (Austrian National Bank)


Kazāks (Latvijas Banka)


Kažimír (National Bank of Slovakia)


Knot (Dutch National Bank)


Lagarde (ECB)


Lane (ECB)


Makhlouf (Central Bank of Ireland)


Müller (Eesti Pank)


Nagel (Bundesbank)


Panetta (ECB)


Rehn (Bank of Finland)


Schnabel (ECB)


Scicluna (Central Bank of Malta)


Šimkus (Bank of Lithuania)


Stournaras (Bank of Greece)


Vasle (Banka Slovenije)


Villeroy (Banque de France)


Visco (Banca d’Italia)


Wunsch (National Bank of Belgium)


de Cos (Banco de España):

08 February 2022

‘Since the last forecast of the European Central Bank ... the available information shows ... a further upward surprise in inflation. Those are essentially the data that have been released in both December and January. ... And those surprises have affected both the energy component and the food component, but also the core. ... In parallel, what we have also observed is that the energy futures curves show a higher level throughout this year than they did in December... And this higher inflation during 2022, well, I think what it does is it increases the probability of what we economists call second-round effects, in a context in which, in addition, the evolution of the labour market continues to be positive in the euro area. And therefore, that also implies that risks to inflation are skewed to the upside, particularly in the short term, at least as long as this current episode of high volatility and high energy prices persists. ... Over this medium-term horizon, inflation is still expected to moderate. Over the past few months, the likelihood of medium-term inflation being in the vicinity of 2% has probably increased, but there is no perceived risk of inflation being persistently above that level in the medium term. In this respect, I think it is important to underline that inflation expectations in the euro area are currently slightly below 2% and that wage growth remains subdued. I also think it is important to underline some of the differences with the United States, because this is a comparison that is being made on a regular basis. And in the case of the euro area ... the energy component is the main factor behind price growth. Not the only one ... but it is the main factor. ... In any case, I think that perhaps the most important thing to underline is that the level of uncertainty about the inflation scenario is very high. The geopolitical tensions that we are experiencing, for example, the ones we all have in our heads, for example in Europe, well, it is clear that they could lead to new increases in energy prices that could feed back into these wage increases and an inflationary spiral. The evolution of bottlenecks, for example, is also very uncertain .... It is also uncertain to what extent the pick-up we have seen in inflation and the persistence of this inflation could lead to a further fall or a more persistent fall in real household and corporate income, which could ultimately also have a negative effect on consumption and investment, and therefore ultimately on inflation. ... more than ever, it is necessary to maintain optionality, it is necessary to maintain flexibility and it is necessary to maintain dependence on incoming information in order to adjust the monetary policy stance appropriately. The fundamental anchor of our monetary policy remains what we call the forward guidance on interest rates.... This forward guidance includes, first of all, a sequence whereby we will only raise interest rates after we have completed our purchase programmes. And furthermore, this forward guidance requires that for this first interest rate increase to take place, three conditions must be met which are well known and which affect the inflation forecast over the medium term, over an 18-month horizon ... and the observed underlying inflation also. These conditions must be met - all three must be met at the same time - they must be met in order to ... avoid a premature tightening of our monetary policy. And I think it is also very important to stress that in this context of uncertainty and with medium-term inflation expectations showing no risks of de-anchoring to the upside, any normalisation of monetary policy must be very gradual. All our measures of the economy's natural nominal interest rates are very low, which also adds to the need to maintain gradualism. ... The direction of where to steer our monetary policy is clear, but I think we should not jump to conclusions about its timing, it will be gradual and it will also be data-dependent.’

Villeroy (Banque de France):

10 February 2022

‘Our business survey at the beginning of February confirms that the French recovery is solid and resists Omicron. It supports our growth forecast, which should be at least 3.6% for 2022. Our survey also highlights the persistence of supply difficulties, which companies believe should be resolved by the end of the year. But above all, 52% of companies are experiencing recruitment difficulties. In the long term, the main obstacle to French growth is this shortage of skilled and unskilled labour. … I want to stress one essential point: today, the French economy is experiencing high growth and too much inflation, but in two years' time, this picture should be reversed. In 2024, inflation will probably be back around 2% and growth will have returned to its pre-covid trajectory of 1.4%, which is too low to bring us back to full employment. It is desirable and possible to set a more ambitious target, around 0.5% of additional potential growth per year: then full employment and debt reduction may finally be on the horizon, but within ten years rather than one year. … The speed of the "French vehicle" over the last two years was due to the fact that the fiscal and monetary accelerator pedal was fully pressed. And we had to. But you can't press the accelerator indefinitely because it comes up against two limits: the public debt for the budget, and inflation for the currency. Today, the issue is therefore different: it is the efficiency of the engine. We need to remove the brakes on the cruising speed of our economy, and this must be done through reforms.’

‘We still think it is a bump, but higher and longer than expected. But remember, a year ago, inflation was at zero in France and even negative in the eurozone, so there was concern that it was weak. This is one of the surprises, in an absolutely unprecedented post-Covid context. The current level, at 5.1% in the euro zone and 3.3% in France, is probably close to the top of the hump, which will be reached in a few months' time. Incidentally, French inflation is well below the eurozone average, mainly due to better control of energy costs. These obviously play a large role in the current rise. If we look at "core" inflation, excluding energy and food, it is 2.3% for the euro zone and 1.7% for France, and therefore much closer to our 2% objective. But we also have to keep an eye on this. We, the European Central Bank and the Banque de France, together with Christine Lagarde, are giving a strong guarantee to the citizens of Europe and France: we will do what is necessary to ensure that inflation returns to around 2% in the long term. We assuredly have both the capacity and the will to do so.’

‘There are justified wage increases in certain sectors that are attractive, for example the hotel and restaurant industry. What seems essential is that increases remain negotiated at branch and company level, as close as possible to the economic and social reality. Measures that are too general would run the risk of a price-wage spiral that would be detrimental to everyone. However, we are not seeing this at this stage in France, nor in the euro zone. After the "bump" of 2022, we can then expect inflation to reach 2% and per capita wages to rise by an average of 3%: thus a gain in purchasing power, extending the 8% cumulative increase since 2015.’

‘Time horizons should not be confused. The current energy crisis is mainly the result of the sudden resurgence of global demand, while supply is constrained by past investment shortfalls and geopolitical tensions. The debate, on the other hand, is about the medium and long term. The effects of the ecological transition will be spread out over time, at least until 2030, and probably beyond. It could have two opposite effects: a higher carbon price - which is desirable - would increase the cost of certain products; conversely, a disorganised transition would weigh on growth and ultimately on inflation. So, modesty is called for: we do not yet know what the overall effect of the ecological transition will be on prices, but we are actively working on this "climate economy", with our Paris-based Global Network (NGFS).’

‘We announced that we would proceed in sequence, with a gradual normalisation: first the end of net debt purchases, then a rate hike and finally only the end of the reinvestment policy (of securities already purchased that come to maturity). The direction of the journey is clear, but the pace of the sequence of steps will depend on the observed inflation and the economic situation.’

10 February 2022

‘…I would say a very simple message: Increased uncertainty requires increased optionality in our monetary policy…’

‘We happen to have our next Governing Council in March. … on March the 9th and the 10th. We will then update our forecasts. And … one month is important, because … we can have developments on the energy front, we can have developments on the geopolitical front. … And then we will decide. But as I said, optionality.’

‘It’s clear that we will have sequencing in the gradual normalisation of our monetary policy. We are going closer towards our target of 2% and this is good news. … But the sequencing of the gradual normalisation will be the following: a) tapering, so stopping the net purchases not only of the PEPP … but under APP. Second, rate hikes. And third … the end of reinvestment, so downsizing of the balance sheet. … the direction is very clear; the pace … of the sequencing is completely open and data-driven. This is what we mean by optionality. And it would be a mistake in such uncertain times to make a premature decision.’

‘We think it’s a hump, we think inflation will step down in the coming quarters, due to energy prices, due also to the easing of supply chain problems.’

2022 growth would be ‘at least 3.6% in France, because we had good results for the first quarter.’

08 February 2022

‘I wouldn’t deduce from what has happened in recent days that there is an ECB calendar that corresponds to an underlying calendar of markets. I think there were perhaps reactions that were very high and too high in recent days.’

‘We are exiting a period of exceptionally accommodative monetary policy -- that is why it is a question of reducing very gradually and in an adapted way.’

Policy normalisation would not exceed a ‘neutral orientation’.

‘We are not ... on the verge of a Eurozone crisis, including in Italy.’

‘However, companies are experiencing serious supply difficulties as a result of the economic recovery which, combined with the rise in energy prices, are undoubtedly causing inflation in France to rise to 3.3% in January and 3.4% year-on-year at the end of 2021 (according to the harmonised index at European level). This is much lower than the average for the Eurozone (5.1%), but this "bump" is higher and longer than expected, and raises many questions among our fellow citizens. However, it should remain temporary: within a few months, inflation in France should gradually decrease, and then fall back below 2%. … I guarantee that we, the European Central Bank and the Banque de France, will do what is necessary to ensure that inflation returns to around 2% in the long term in the euro zone and a fortiori in France. We have the mandate, we have the capacity, we have the will: this will contribute in France to consolidate the gains in purchasing power on average, which have been significant in recent years with a per capita gain of around 8% over the period 2015-2021, even if this figure does not cover the diversity of individual situations. The French can have full confidence in the stability of their currency, the euro.’

04 February 2022

‘Yesterday, in the face of increasing uncertainty on inflation, our key word was “more than ever” optionality. We take it seriously: we retain our full optionality on the decisions we will make from March and in the following quarters, informed then by the latest data, forecasts and geopolitical developments. And as we clearly stick to our sequencing – starting with first tapering and second lift off - we will also retain our full optionality about the pace of this sequence, and timing of moving from one stage to the other. Hence, while the direction of the journey is clear, one shouldn’t rush to conclusions about its calendar: it will remain gradual, state dependent, and open in each of its steps.’

‘The ecological transition holds risks, including on inflation as the gradual switch to greener energies may entail higher and more volatile prices, at least in the intermediate phase. Central banks are closely monitoring this debate about a possible “greenflation”. So far, the evidence points to a non-negligible but limited direct contribution of climate policy in the recent increase in inflation. For example, the ongoing rise in CO2 prices in the European ETS market, which we are already taking into account in our inflation projections, has a modest positive impact on inflation. And the implementation of a carbon tax in Germany in 2021 has had a discernible impact in 2021: combined with other measures to tackle climate change, the overall impact on German consumer prices was estimated at 0.4 percentage point in 2021. That said, climate transition is far from being the primary cause of the recent surge in energy prices across the world. Indeed, it has more to do with a combination of global factors: rapid demand recovery from the pandemic-induced recession, supply disruptions, geopolitical tensions. And in the specific case of Europe, the shock on energy prices is amplified by the run-up in wholesale electricity market prices, due to a shortage in natural gas. Afterwards, beyond our projection horizon, the transition to net zero might have a more significant impact on inflation, especially if it were to be disorderly. The net zero transition would then result into a negative supply shock, in particular if the capacity increase in alternative energy sources were too slow. In addition, the reallocation of demand involved by the transition might trigger relative prices changes in some sectors. The level of r* – the natural interest rate – could also be affected in two opposite ways: higher green investments will increase it; but a negative impact on productivity growth would reduce it. On many of these questions, it’s too early to tell. We need urgently more analytical work on the macroeconomic modelling of climate transition; more than ever, monetary policy will remain a judgment exercise, looking through temporary phenomena while averting lasting increases in inflation. Central banks will have to ensure that these shocks on relative prices do not result into a lasting increase in inflation. One thing is certain: the sooner we start the transition, the better to ensure long-term sustainable growth and price stability.’

Nagel (Bundesbank):

09 February 2022

‘Currently, the global economy is doing quite well, it is in an almost post-Corona mood. The recovery from the pandemic-related slump has been unexpectedly fast and strong. Such growth is accompanied by strong demand for energy, which partly explains these price rises. In addition, there is the critical geopolitical situation between Ukraine and Russia. An important question for monetary policy is whether and to what extent energy prices will fall again. ... If energy prices only fluctuate strongly in the short term, monetary policy would do well to hold back. But there are signs that the rise in energy prices could last longer, that it has an impact on the prices of other goods and services, that there is also rising demand behind it. Moreover, the inflation rate is not only driven by energy prices. Half of the current high inflation is due to energy prices. We should also look at the other half. As central bankers, we can do a lot about that. We must not ignore the fact that we have provided the markets with abundant, even overabundant liquidity over the years because the inflation rate was too low for a long time.’

‘It has certainly not failed, it is now facing a new and different test than in the low-inflation environment before the pandemic: if you look at the inflation figures and the macroeconomic environment, we have reached a point that is a textbook template for central bank action. The onus is now on the ECB. We will look at the data, in March the new projections for growth and inflation will come. And on that basis we will decide. If the inflation picture and, above all, the outlook for the future do not brighten considerably by then, we will have to realign monetary policy. … We have precisely defined the order in which we will act if necessary: First comes the exit from net bond purchases, then we raise interest rates. ... I think it is important that we agree in the euro area to first withdraw the measures that we took last in the crisis. The bond purchases are associated with greater risks and side effects. That is why they were taken late. And that is why they should be stopped first.’

‘The Governing Council did an important and good job in the Corona period and before. Now we can start to withdraw as central bankers from the unusual monetary policy of the past years with the very low interest rates and the bond purchases.’

‘I see very clearly the risks we run if we wait too long before normalising monetary policy. I already referred to the social dimension of inflation in my inaugural speech. In my estimation, the economic costs are significantly higher if we act too late than if we act early. This is also shown by past experience. Later, we would have to raise interest rates more vigorously and at a faster pace. The financial markets then react with more volatility. ... If we wait too long and then have to act more massively, the market fluctuations can be more pronounced.’

‘The currently very high energy prices are not primarily explained by climate policy measures. However, if you put the economy into an ambitious transformation process, this can lead to permanently higher prices. In the past, we often assumed that energy prices would go down again after a high because it was only a short-term shortage that could be eliminated. Now it could be different because of the green transformation of the energy supply. We have to be all the more vigilant.’

‘It is too early to make a reliable statement. But if inflation remains at a high level for longer, the probability of second-round effects increases. From today's perspective, the experts at the Bundesbank believe it is likely that inflation in Germany will average well over 4% in 2022.’

‘Since last summer, the inflation rate has risen significantly. There are many reasons for this that have nothing to do with monetary policy: the pandemic, supply bottlenecks, the geopolitical situation. But there are now signs that we have to take countermeasures: Many countries are starting to ease pandemic restrictions. The economy is recovering. Labour markets are looking good. That is an encouraging picture! That is why monetary policy can become less expansionary.’

‘Of course, we can't clear congestion in ports or get containers to where they are needed. But the supply bottlenecks also stem from the fact that demand has risen unexpectedly fast and strongly. And if the bottlenecks and increased inflation persist for a long time, they could also affect longer-term inflation expectations. Temporary price pressures can continue via such second-round effects. Monetary policy must prevent this.’

‘In our forecasts, we are currently assuming that the inflation rate in Germany will not fall noticeably until the second half of 2022, but will continue to be too high. However, I am convinced that monetary policy will succeed in achieving its target of 2% inflation in the medium term.’

‘If the picture does not change by March, I will advocate normalising monetary policy. The first step is to end net bond purchases in the course of 2022. Then interest rates could rise this year.’

Kazāks (Latvijas Banka):

07 February 2022

‘July would imply an extremely and unlikely quick pace of tapering. But overall, at the current juncture, naming a specific month would be much premature.’

‘If we see that inflation remains high and the labour market remains strong or strengthens further, if we see that the economy keeps going, the direction is clear: we may act sooner than we assumed in the past.’

‘With the economy recovering, inflation at this level and increased risk of persistency of inflation, new net asset purchases become less necessary.’

Favoured new ‘roadmap’ for tapering rather than repeated decisions that create ‘recurrent cliff effects’.

Lane (ECB):

10 February 2022

‘From a monetary policy perspective, the role of bottlenecks in near-term and medium-term inflation dynamics needs to be carefully assessed. In addition, it should be acknowledged that bottlenecks are not the only factor influencing the overall inflation environment, with a comprehensive monetary policy assessment taking into account a wide range of factors. Having stated that caveat -- and with a narrow focus on the implications of bottlenecks for monetary policy -- it should be recognised that the prevalence of downward nominal rigidities in wages and prices means that surprise relative price movements should mainly be accommodated by tolerating a temporary increase in the inflation rate, rather than by seeking to maintain a constant inflation rate that could only be achieved by a substantial reduction in overall demand and activity levels. Since bottlenecks will eventually be resolved, price pressures should abate and inflation return to its trend without a need for a significant adjustment in monetary policy. The logic underpinning a hold-steady approach to monetary policy is reinforced if the bottlenecks are primarily external in nature, caused by global disruptions in supply or a surge in global demand. Since monetary policy steers domestic demand, a tightening of monetary policy in reaction to an external supply shock would mean that the economy would be simultaneously confronted with two adverse shocks - a deterioration in the international terms of trade (generated by the increase in import prices) and a reduction in domestic demand. Of course, the diagnosis is quite different if domestic demand is assessed to be a primary driver of global bottlenecks or if there are bottlenecks in the domestic labour market. In addition, it is always necessary to monitor second-round effects, since increases in the consumer price level may propagate through second-round effects on other sectors and on wages. However, even such second-round effects should eventually fade, given the temporary characteristic of the initial price surge, unless long-term inflation expectations are permanently altered by the temporary phase of higher inflation. Accordingly, central banks closely monitor the evolution of indicators of longer-term inflation expectations.’

‘[T]he ECB’s latest corporate telephone survey … does indicate that bottleneck pressures are expected to ease, this will take some time – the modal answer in the survey was that bottlenecks would persist for at least another six months. While around a quarter of respondents were more optimistic (predicting that bottlenecks would ease within six months), another quarter of respondents feared that bottlenecks would persist for about a year.’

‘First, compared to the gas price profile that was incorporated in the staff macroeconomic projections in December 2021, the spot price of gas has declined considerably in recent weeks. Second, at the same time, there has been a significant revision in the futures curve, especially for the current year. Although a significant decline in gas prices is still expected, the timing has been shifted outwards, with the scale of declines during 2022 priced to be much more muted compared to the December 2021 projections exercise. Of course, it should be emphasised that futures prices also incorporate risk premia, so these do not necessarily capture a “true” expectation of future prices, and geopolitical tensions (together with weather-related uncertainty) mean that risk considerations are especially pertinent at the moment.’

‘Although earnings growth in the euro area remains muted so far (as tracked by negotiated wages), there has been a significant increase in average hourly earnings in the United States. … the euro area labour market has made considerable progress in recent months, with the labour force participation rate back to pre-pandemic levels, unemployment declining to 7.0 percent (faster than expected in the December 2021 staff projections) and the PMI employment indicators signalling employment growth across all sectors. At the same time, the euro area labour market is not experiencing the same degree of labour market tightness as in the United States. Chart 12 shows the ratio of vacancies to unemployment. While this is ticking up in the euro area and is higher than before the pandemic, the level of this ratio is far higher and its slope has been far steeper in the United States. Other indicators also suggest that the labour market has not fully recovered. Hours worked in the euro area are still below the pre-pandemic level and various furlough and wage subsidy schemes remain in place, so the overall state of the labour market continues to be affected by pandemic-related factors. In addition, there is still the important open question of whether the degree of entry by foreign workers (which is especially important in the services sector) will return to pre-pandemic levels once the pandemic is behind us. Still, the improvement in the labour market indicates that wage dynamics should strengthen over the course of 2022-2024. A marked pickup was already incorporated in the December staff projections, while the latest corporate telephone survey also suggests that wages are expected to grow more quickly during 2022... Although this survey focuses on large firms, and therefore does not represent the full spectrum of the labour market, it does provide a directional guide to wage pressures across a significant number of sectors and countries.’

‘Since the prices of tradable goods and energy are heavily influenced by global factors, supply-demand mismatches that originate in external factors can exert a powerful impact on the overall inflation rate. However, bottleneck-related price pressures should fade over time as pandemic-induced frictions disappear and supply and demand adjust in response to relative price movements. In relation to the labour market, a bottleneck scenario can emerge if there is an unexpected and large-scale increase in aggregate labour demand or a substantial shortfall in aggregate labour supply. Although there might be some signs of labour market bottlenecks in certain sectors in some euro area countries, the overall profile of the euro area suggests a smooth recovery in overall labour supply (even if the scale of the future return of foreign workers remains an open question) and provides hopeful signs of a gradual-but-sustained increase in labour demand. Such a gradual tightening of the labour market constitutes a key mechanism for inflation to stabilise at our two per cent target over the medium term, whereas there are no indications of aggregate overheating in the euro area labour market.’

25 January 2022

‘In the near term, there are some risks from the Omicron variant. But I think it's increasingly clear that the impact is only for a few weeks. So it is not turning out to be a factor that will influence the activity levels for the year, it's more the activity levels for a few weeks. In that sense, I think there's less concern about Omicron than we had in December. In terms of the overall pandemic, I think it is fair to say that the recovery so far has been stronger than expected − compared to, for example, early 2020 when the pandemic hit. In the initial months of the pandemic there was a lot of concern. But essentially, when the vaccines have been rolled out during 2021, it turned out that the euro area economy and the world economy has recovered more quickly than expected. And looking to this year, 2022, we expect another strong year of recovery. So essentially, there's been a strong recovery, supported by a lot of policy measures, both fiscal policy and monetary policy. I think in overall terms the sense is that, between the public health measures and other measures, it's turning out that we can hope that the euro area can recover quite well from the pandemic.’

‘We should think about these years of the pandemic, 2020, 2021 and 2022 as part of a pandemic cycle. In the first year 2020, inflation was relatively low. In the second half of 2021, inflation turned out to be quite high. And then, as we look into this year, 2022, we think inflation will remain high at the start of this year, but will fall later this year, especially towards the end of the year. So it's a year, essentially, where in the first part of the year, we'll still see inflation remaining high. But we do expect it to fall quite a bit later this year. We are clear from our December forecast that we expect inflation − in overall terms for this year − to be around 3.2% in the euro area, and then to be below 2% in 2023 and 2024. Compared with the peak, that's quite a big decline. We will see exactly the timing of how quickly inflation falls. So rather than focus on month by month, we have a clear vision in terms of the overall direction: that the inflation rate will fall later this year. And in fact, … our current view from December is that inflation will fall below the 2% target in the next couple of years.’

‘I think we are always clear that we’re guided by our intentions to deliver an inflation rate of 2% over the medium term. So we will adjust all of our policies − whether that's asset purchases, the targeted lending programme, our interest rates − to deliver that goal. You've given me a hypothetical, the hypothetical is: what happens if inflation is above our forecast. So let me in turn make clear that what is very important is whether inflation will essentially settle at around our target of 2%, which would be essentially what we want, or whether there might be signs of inflation being above 2% in a significant way for a significant amount of time. And if we saw the data coming in to suggest that inflation would be too high relative to 2%, then of course we would respond. We also have been clear on our sequence. The first decision under that scenario would be to end net purchasing. And only after ending net asset purchases would we look at the criteria for raising the interest rates. So we will be driven by the data, driven by our assessment. And every month, every quarter, we're going to learn more about where the data are going.’

‘We spend a lot of time looking at the interlinkages. One linkage is that an increase in the cost of living may be a factor in wage negotiations. We think that is clear. The question is how much, because, remember, energy is both a direct cost to the consumer, but also a cost to other firms. Rising energy prices can also mean rising food prices, rising prices of goods and services. We are also examining how much the increase in energy prices might show up in rising goods prices and services prices. So far, we do not see a big response of wages. We do expect a response of wages but what is critical is how big. Because, remember, in the euro area, for inflation to be around 2% and allowing for a typical increase in labour productivity of about 1%, then wages should be growing around 3% a year in the euro area on average to be consistent with the 2% target. We are not, right now, seeing wage increases in that zone. But of course, we will continue to look at this throughout the year.’

‘I think this [inflationary pressure from the energy transition] is a complicated issue. Let me also emphasise that what we have right now is an increase in global energy prices. The euro area imports energy from the rest of the world. So this is a very different scenario from a scenario, which we would expect to occur in the coming years. Which is essentially, if there’s, for example, policies that increase the price of carbon, as part of the transition away from a high-carbon economy. If we see an increase in the price of carbon because of taxes or regulation, driven by domestic policy, those revenues from a carbon tax, for example, can be recycled in the domestic economy and can stimulate the economy. Whereas what we have right now is different. We have an increase in import prices from the rest of the world. And this is reducing living standards, increasing the import bill. It has a negative channel to lower incomes, lower consumption. So I think it's a very interesting, very important debate about the future of green energy policies. That is playing some role right now. But the main role right now is a global issue, rather than the transition. So we will return to this topic, no doubt.’

‘Let me mention three scenarios [where the ECB could hike interest rates]. And again, to repeat, we're examining hypotheticals here. One scenario is in fact that the forces that generated low inflation before the pandemic essentially become visible again after the pandemic. So one scenario is that the world economy will return to quite low inflation rates. A second scenario is that some of these headwinds will not return and, in fact, it may be easier for us to deliver our target of 2%. So that is a kind of middle scenario where inflation will stabilise at 2%. And then the third scenario is, if inflation picks up and there is a risk that inflation will be significantly above 2%. In this third scenario, where inflation is significantly above 2% on a persistent basis, then that will call for a monetary policy tightening. We would have to respond. In the middle scenario where inflation stabilises at 2%, then clearly over time we would normalise monetary policy. The policies we need to fight very low inflation would no longer be needed if inflation were stable around 2%. And in the first scenario where inflation is significantly below 2%, then the policies that we have employed to fight low inflation would still remain relevant. So this is the way I think about the world, but there are three scenarios. One, we remain with a low inflation problem. Two, we stabilise -- in a kind of smooth way -- inflation around 2%. And three, if inflation turns out to be persistently above 2%, we would have to tighten. And so those are three very different scenarios.’

‘In the December round of projections, the assessment was that, in fact, we saw inflation returning to below 2%. But we also emphasised that in a world of uncertainty, as we have more data come in, of course the data can change. But in the euro area context, I would say that it's also possible that we may enter a world where inflation stabilises around 2%. I find it less likely to think about a scenario where inflation is persistently, significantly above 2%, which would require a serious tightening. That scenario, would, I think, in the context of the euro area, be less likely than the other two scenarios.’

‘What we've seen in this pandemic is: yes, governments have borrowed more, and some types of firms have borrowed more. But households have been saving a lot. In the banking sector, we also have banks which are better able to handle debt, because they have increased their capital positions. So, when you have a situation where, essentially, in the euro area, debt levels have gone up for the sovereign and for some corporates but have gone down for households, and where the banks, that are kind of in the middle of the system, are in better shape, then I think it's a different scenario to ten years ago. And then the other issue is: we think the trend level of interest rates is lower today than ten years ago. So, when interest rates go up, it's from a very low level. And that's important.’

‘Geopolitics always matters. I think if you look at the history of the world economy, the European economy, geopolitical events matter a lot via trade, via global prices, via uncertainty. So, of course, we will be looking very closely at such factors. We already talked about the very high energy prices. And of course, there's a connection between higher energy prices and these tensions. So of course, it's very directly relevant for us.’

Lagarde (ECB):

10 February 2022

‘I see that prices are going up and I am by no means indifferent to it. There are members of my family whose business is hampered by the rise in energy prices. That concerns me very much.‘

‘Our task is to maintain price stability. If that is in danger, we will take action. But we have to ask ourselves when is the right time to do so. We have to consider that the full impact of any decision we make is generally not felt until nine to 18 months later.’

‘We first need to understand the source of the rise in prices. Just over 50 per cent of it can be attributed to the surge in energy prices. Oil, gas and electricity have become more expensive. And as we import a lot of energy, these prices are, to some extent, beyond the sphere of influence of our economy. The second main factor driving up prices is supply bottlenecks: shortages of microchips, container jams, disrupted supply chains. Let me ask you: what can the ECB do about that? Can we resolve supply bottlenecks? Can we transport containers, lower oil prices or pacify geostrategic conflicts? No, we can’t do any of that.’

Raising interest rates ‘would not solve any of the current problems. On the contrary: if we acted too hastily now, the recovery of our economies could be considerably weaker and jobs would be jeopardised. That wouldn’t help anybody.’

‘[W]e have already begun to take measures. In March we will discontinue the pandemic emergency purchase programme. The ECB will reduce the overall volume of its net asset purchases. Ending net asset purchases is a precondition for increasing interest rates at a later point in time.’

‘We currently see inflation figures increasing and we are taking that into account in our projections. Inflation may turn out to be higher than we projected in December. We will analyse that in March and then take it from there.’

‘Just under two years ago there was so much oil that tankers were lined up in the ports. And buyers were actually given money if they purchased oil. This collapse in demand was unprecedented – as were, shortly afterwards, the recovery in demand and the geopolitical upheavals, which have driven up prices. In truth, neither of these movements could have been rationally anticipated.’

‘Please don’t get me wrong: high energy prices are not a temporary phenomenon; they will be with us for some time to come. But the price level is already very high. The oil price has gone up from less than €20 in April 2020 to €90 per barrel and it is highly unlikely that it will continue climbing at that pace. So even if only for that reason, inflation will slow down.’

‘Inflation will stay relatively high in the coming months. However, I am confident that it will fall back in the course of the year.’

‘We need to carefully analyse how the high energy prices are affecting other prices. Expensive energy pushes up the price of fertiliser, expensive fertilisers push up the price of food, and so on. We will scrutinise that closely in March, and in every subsequent meeting in the coming months. We will act if necessary. But all of our moves will need to be gradual.’

‘We need to carefully analyse how the high energy prices are affecting other prices. Expensive energy pushes up the price of fertiliser, expensive fertilisers push up the price of food, and so on. We will scrutinise that closely in March, and in every subsequent meeting in the coming months. We will act if necessary. But all of our moves will need to be gradual.’

‘The situation in the United States or the United Kingdom cannot be compared to the euro area. The US economy is overheated, whereas our economy is far from being that. That’s why we can – and must – proceed more cautiously. We don’t want to choke off the recovery.’

‘We gave crutches to the economy so that it could continue on its path. We will soon remove the crutches, because firms can once again operate unaided.’

‘We already had negative interest rates when the coronavirus crisis hit. Raising interest rates would have driven the economy straight into the wall. We would have ended up with a financial crisis on top of the pandemic and the economic crisis. But we managed to avoid that. Now we can adjust – calmly, step by step – our monetary policy instruments. And when the economic data allow it, we will do it.’

‘The current impact of decarbonisation on prices is minimal – be it from emissions trading or carbon taxes. We must complete the green transition of the economy to prevent the Earth from turning into a frying pan.’

‘I think that the greenflation debate is exaggerated.’

‘First of all, I think it’s understandable and legitimate for trade union leaders to demand higher wages to maintain workers’ purchasing power in these circumstances. Wage developments are generally linked to productivity increases and medium-term inflation expectations, which are currently close to our inflation target of two per cent. Only if the wage settlements were to significantly and persistently exceed these measures could this accelerate inflation. But we are not seeing that at the moment at all. In most euro area countries, including Germany, wage demands are very moderate.’

07 February 2022

‘The current pandemic wave and associated restrictions are likely to continue to have a negative impact on growth at the start of this year. Two other factors which we discussed at the previous hearing − namely supply bottlenecks and high energy costs − are also expected to dampen economic activity in the near term. However, the economic impact of the current pandemic wave appears to be less damaging to activity than previous ones. Moreover, the aforementioned bottlenecks will still persist for some time, but there are signs that they may be starting to ease. This will allow the economy to pick up strongly again later this year.’

‘Inflation is likely to remain high in the near term. Energy prices continue to be the main reason for the elevated rate of inflation. Their direct impact accounted for over half of headline inflation in January and energy costs are also pushing up prices across many sectors. Food prices have also increased, owing to seasonal factors, elevated transportation costs and the higher price of fertilisers. In addition, price rises have become more widespread, with the prices of a large number of goods and services having increased markedly.’

‘Financing conditions for the economy have remained favourable. While market interest rates have increased since December, bank funding costs have so far remained contained. Bank lending rates to firms and households continue to stand at historically low levels.’

‘Turning to the risk assessment, we continue to see the risks to the economic outlook as broadly balanced over the medium term. Uncertainties related to the pandemic have abated somewhat. At the same time, geopolitical tensions have increased and persistently high costs of energy could exert a stronger than expected drag on consumption and investment. The pace at which supply bottlenecks are resolved is also a further risk to the outlook for growth and inflation. Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term. If price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher.’

‘In a few weeks, the March ECB staff projections will provide an updated assessment, taking the most recent data into account. This will help the Governing Council better appraise the implications of the surprisingly high December and January inflation figures for the medium-term outlook. In particular, we will carefully examine how higher energy prices will transmit through the economy and affect the outlook overall. Two channels could be at play, pulling inflation dynamics in different directions. On the one hand, rising energy costs can drive up prices directly, by increasing the cost of production, as well as indirectly, by having second-round effects on wages. On the other hand, they can have a negative impact on the incomes of households and the earnings of companies, thereby reducing economic activity and dampening the inflation outlook. In the past, the euro area has been particularly vulnerable to the second channel, as surges in energy prices weakened the spending power of households, and reduced inflation over the medium term. Obviously, in our assessment of the inflation outlook, we have to bear in mind that demand conditions in the euro area do not show the same signs of overheating that can be observed in other major economies. This increases the likelihood that the current price pressures will subside before becoming entrenched, enabling us to deliver on our two per cent target over the medium term. Indeed, while moving up over recent months, indicators of longer-term inflation expectations are consistent with this expectation. Survey-based measures point to inflation returning to two per cent by 2023 and remaining close to this level thereafter; and market-based indicators stabilise around levels somewhat below two per cent. The solid anchoring of long-term inflation expectations in the euro area is a reassuring development, coming after a long period when they were subdued.’

‘To sum up, the euro area economy has continued to recover, although growth is expected to remain subdued in the first quarter. While the outlook for inflation is uncertain, it is likely to remain elevated for longer than previously expected, but to decline in the course of this year.’

‘In our meeting last week, we confirmed the decisions we took in December. Accordingly, we will continue reducing the pace of our asset purchases step by step over the coming quarters, and will end net purchases under the pandemic emergency purchase programme at the end of March. In view of the current uncertainty, we need more than ever to maintain flexibility and optionality in the conduct of monetary policy. Our monetary policy is always data-dependent, and this is all the more important in the situation that we are facing at the moment. We will remain attentive to the incoming data and carefully assess the implications for the medium-term inflation outlook. Those implications are key parameters in our forward guidance. Our forward guidance has several dimensions. There is a defined sequencing between the end of our net asset purchases and the lift-off date. A rate hike will not occur before our net asset purchases finish. Moreover, there are three conditions that will have to be met before the Governing Council feels sufficiently confident that a tilt in our policy rate is appropriate. All the three conditions are meant as safeguards against a premature increase in interest rates. Finally, any adjustment to our policy will be gradual.’

03 February 2022

‘The euro area economy is continuing to recover and the labour market is improving further, helped by ample policy support. But growth is likely to remain subdued in the first quarter, as the current pandemic wave is still weighing on economic activity. Shortages of materials, equipment and labour continue to hold back output in some industries. High energy costs are hurting incomes and are likely to dampen spending. However, the economy is affected less and less by each wave of the pandemic and the factors restraining production and consumption should gradually ease, allowing the economy to pick up again strongly in the course of the year. Inflation has risen sharply in recent months and it has further surprised to the upside in January. This is primarily driven by higher energy costs that are pushing up prices across many sectors, as well as higher food prices. Inflation is likely to remain elevated for longer than previously expected, but to decline in the course of this year. The Governing Council therefore confirmed the decisions taken at its monetary policy meeting last December… Accordingly, we will continue reducing the pace of our asset purchases step by step over the coming quarters, and will end net purchases under the pandemic emergency purchase programme (PEPP) at the end of March. In view of the current uncertainty, we need more than ever to maintain flexibility and optionality in the conduct of monetary policy. The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its two per cent target over the medium term.’

‘Economic activity and demand will likely remain muted in the early part of this year for several reasons. First, containment measures are affecting consumer services, especially travel, tourism, hospitality and entertainment. Although infection rates are still very high, the impact of the pandemic on economic life is now proving less damaging. Second, high energy costs are reducing the purchasing power of households and the earnings of businesses, which constrains consumption and investment. And third, shortages of equipment, materials and labour in some sectors continue to hamper the production of manufactured goods, delay construction and hold back the recovery in parts of the services sector. There are signs that these bottlenecks may be starting to ease, but they will still persist for some time. Looking beyond the near term, growth should rebound strongly over the course of 2022, driven by robust domestic demand. As the labour market is improving further, with more people having jobs and fewer in job retention schemes, households should enjoy higher income and spend more. The global recovery and the ongoing fiscal and monetary policy support also contribute to this positive outlook. Targeted and productivity-enhancing fiscal measures and structural reforms, attuned to the conditions in different euro area countries, remain key to complement our monetary policy effectively.’

‘Inflation … is likely to remain high in the near term. Energy prices continue to be the main reason for the elevated rate of inflation. Their direct impact accounted for over half of headline inflation in January and energy costs are also pushing up prices across many sectors. Food prices have also increased, owing to seasonal factors, elevated transportation costs and the higher price of fertilisers. In addition, price rises have become more widespread, with the prices of a large number of goods and services having increased markedly. Most measures of underlying inflation have risen over recent months, although the role of temporary pandemic factors means that the persistence of these increases remains uncertain. Market-based indicators suggest a moderation in energy price dynamics in the course of 2022 and price pressures stemming from global supply bottlenecks should also subside.’

‘Labour market conditions are improving further, although wage growth remains muted overall. Over time, the return of the economy to full capacity should support faster growth in wages. Market-based measures of longer-term inflation expectations have remained broadly stable at rates just below two per cent since our last monetary policy meeting. The latest survey-based measures stand at around two per cent. These factors will also contribute further to underlying inflation and will help headline inflation to settle durably at our 2% target.’

‘We continue to see the risks to the economic outlook as broadly balanced over the medium term. The economy could perform more strongly than expected if households become more confident and save less than expected. By contrast, although uncertainties related to the pandemic have abated somewhat, geopolitical tensions have increased. Furthermore, persistently high costs of energy could exert a stronger than expected drag on consumption and investment. The pace at which supply bottlenecks are resolved is a further risk to the outlook for growth and inflation. Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term. If price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher.’

‘Market interest rates have increased since our December meeting. However, bank funding costs have so far remained contained. Bank lending rates for firms and households continue to stand at historically low levels and financing conditions for the economy remain favourable. Lending to firms has picked up, supported by both short and longer-term loans. Robust demand for mortgages is sustaining lending to households. Banks are now as profitable as they were before the pandemic and their balance sheets remain solid. According to our latest Bank Lending Survey, loan demand by firms increased strongly in the last quarter of 2021. This was driven by both higher working capital needs, stemming from supply bottlenecks, and increased financing of longer-term investment. In addition, banks continue to hold an overall benign view of credit risks, mainly because of their positive assessment of the economic outlook.’

‘Summing up, the euro area economy continues to recover, but growth is expected to remain subdued in the first quarter. While the outlook for inflation is uncertain, inflation is likely to remain elevated for longer than previously expected, but to decline in the course of this year. We will remain attentive to the incoming data and carefully assess the implications for the medium-term inflation outlook. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at its 2% target over the medium term.’

‘Concerning inflation: with the upside surprise that we have seen first in December, second in January, I can tell you that there was unanimous concern around the table of the Governing Council about inflation numbers and obviously the impact this has on the near term and the impact this has on our compatriots in Europe. We know that the burden is first and foremost borne by those who are most vulnerable, most exposed and who face the day-to-day hardship of having to put up with higher prices. I can assure you that that concern was across the board and around the table in equal numbers. We had a very thorough and in-depth discussion about inflation precisely and were focussing on the latest information we have, but also the impact that it will have on our medium-term outlook. That is clearly something that will be examined in more depth at the time of our March Governing Council meeting, when we produce more projections – which we have not on this occasion – when we can harness all the latest data that we have, where we can also have more information about the job markets, about wages and where we can really analyse in depth what the impact is on our medium-term projections. We are all driven by the same mandate, which is price stability. We are all concerned to take the right steps at the right time, and I think there was also a concern and a determination around the table not to rush into a decision unless we had a proper and thorough assessment based on data and the analytical work that will take place in the next few weeks. That's on your first point concerning the inflation numbers.’

‘On the other question of the rate hikes: you know, I never make pledges without conditionalities and it is even more important at the moment to be very attentive to that. As I said, we will assess very carefully, we will be data dependent, we will do that work in March. I think it will take us into the analysis of what are the drivers behind inflation in the short term, what are the drivers behind inflation in the medium term, and how the whole outlook and medium-term projections look like. Let's not forget that we will continue doing so on the basis of our forward guidance, that we will continue to observe the sequence that we have agreed, and that we will be gradual in any determination that we make at the right time on the basis of data.’

‘The United Kingdom has had a history of much higher inflation than what we have had in the euro area; that's point number one. The critical difference now between our respective economies, the critical one – there are many other ones – but the critical one has to do with the labour market, where clearly there is a lot of pressure on wages, where there is scarcity of workers for jobs that are available, and where - I don't want to take a political stance, but I think that there was a lot of non-UK labour force that eventually had to leave the United Kingdom which has not been totally replaced, and where the shortage of workers is actually having a bearing on the forces of the labour market in the UK. So that's really in essence what is causing the significant difference between the two.’

‘On the wage front: what we are seeing and that we can really celebrate is that the euro area is at the lowest unemployment number it has ever been. 7% unemployment is a record number. The second aspect of that labour market is that our participation of employees in the labour market is back to the level where it was pre-COVID. So on those two accounts we have good news to celebrate. What we are not yet seeing is a significant movement in terms of wage increases. We are not seeing a lot either in relation to wage negotiations. That normally should be the next step that we see, with lower unemployment, more people leaving the furlough schemes under which they were operating, and the output gap closing gradually and the economy returning to full capacity. We should see movement, and we are not seeing a lot of it yet. Now, of course a lot of the information that we are getting statistically is backward-looking, but we are also very attentive to what is happening and what is likely to happen. That is actually taken into account to a certain extent in our projection numbers, but clearly what will happen in the next few weeks and what we can see, both for our March meeting and then later on our June meeting, will be critically important to determine whether the three criteria of our forward guidance are fully satisfied.’

‘It is a fact that we have removed [from our monetary policy statement] the portion that says in both directions. We now say the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its 2% target over the medium term. I think “as appropriate” – which we debated within the Governing Council – captures the vast array of optionalities that we have available depending on the data that we receive, and as, hopefully, some of the uncertainty we have around clears off. So we thought that “as appropriate” was perfectly adequate to cover all the moves that we could take and all the optionalities that are available for us. I think based on recollection - because we debated that a little bit – the “in either direction” was inserted once to really indicate that there was a change of tack and that we were no longer in that low inflation environment for such a long period of time. That was inserted in the December monetary policy statement. We are clearly receiving data that inform us about the high level of inflation, certainly the upside risk to our projection, particularly for the short term, and that is the reason why we thought that “as appropriate” would cover all the optionalities that we have.’

‘… providing forecasts, elaborating projections is a difficult exercise that is based on the assumptions that you make and on the models that you use. I have full confidence that staff do their best to include all the sensible, reasonable, rational assumptions that they can. I can assure you that they go through a whole array of scenarios: what if, what if, what if. They use the models that they use – that many of you listening to me are also using. It is hardly surprising that most projectionists, most forecasters have also been surprised by the inflation numbers in particular in December and January. Very few of them could've anticipated the energy shock, the massive shock that is hitting our economies around the world, but particularly so in Europe, where we are so vastly export-dependent when it comes to our energy. That clearly has an impact that was not anticipated because it was not in the assumptions. Now, all the work that is done by staff to elaborate on those projections, all that work is also assessed by the Governing Council and each and every Governor of each and every national central bank is consulting with their staff as well. Their staff are also feeding data into the aggregate projections that we produce at least in one case out of two every year – sorry, two out of four. But the determination is made by the Governing Council. Indeed, there is an element of discretionary judgement. We don't take projections just at face value and this is particularly relevant in the current circumstances given the level of uncertainty, given the geopolitical risks around. There has to be an element of judgement that actually belongs to the table of the Governing Council.’

‘I don't make pledges without conditionalities and I did make those statements [that it's “very unlikely” that we will raise interest rates this year] at our last press conference on the basis of the assessment, on the basis of the data that we had. It was, as all pledges of that nature, conditional. So what I am saying here now is that come March, when we have additional data, when we've been able to integrate in our analytical work the numbers that we have received in the last few days, we will be in a position to make a thorough assessment again on the basis of data. I cannot prejudge what that will be, but we are only a few weeks away from the closing time at which we provide the analytical work, prepare the projections for the Governing Council, and then come with some recommendations and make our decisions. I think it all goes back to: how do we make our decisions? We make them on the basis of data, we make them on the basis of the forward guidance when it comes to interest rates. We make them gradually because we are not here to rock the boat, if I may say. We are going to use all instruments, all optionalities in order to respond to the situation – but the situation has indeed changed. You will have noticed that in the monetary policy statement that I just read, we do refer to the upside risk to inflation in our projection. So the situation having changed, we need to continue to monitor it very carefully. We need to assess the situation on the basis of the data, and then we will have to take a judgement.’

‘…what's my prediction about the medium-term inflation? Well, again I'm very sorry to say, but we do assess risk to the upside for the near term, particularly for the near term. We're not excluding, but we say particularly for the near term. We will know better what impact it will have on the medium-term inflation. Let me just say one thing: we are getting much closer to target and this is so because in the medium term there are factors, drivers of inflation that are helping us finally reach - hopefully - that target. That has to do with the labour market that I was discussing earlier. That has to do with the broad-based inflation that we have, which concerns more than 60% of the items. It has to do with the inflation expectations which, whether based on surveys or market-based, are now heading very close to or at target. So this is all a good development and I'm saying that with a concern because I know how much hardship it imposes on all of us Europeans, and particularly those who have to fill up the tank and who have to put food on the table, because it is hard. Prices are going up very much at the moment. We see them continuing to stay high for a few more months, but then declining over the course of '22 and then our medium-term numbers, we will have more certainty at our March meeting.’

‘I opened this press conference by saying how all Governing Council members were concerned about the inflation numbers which were at a very surprising level, by all accounts, and whoever are the projectionists and the forecasters. Of course, we went into the analysis of: is it more supply, is it more demand? We all know that monetary policy can have a stronger impact on demand and that the impact on supply particularly if it is imported supply as is the case with energy price increase, is going to be more limited. I would have a little caveat on that one because clearly, the longer it lasts, the higher the likelihood of second-round effects there will be. In that case, obviously monetary policy has a role to play. I think that we are all concerned that we have a mandate which is to deliver price stability, which is to make sure that inflation is at target in the medium term, which is the strategy that we have adopted, all of us. We know the limits of what can be done and when it can be done, but we know that action has to be taken when the conditions are ready for that.’

‘When it comes to interest rate hikes, we have a forward guidance which has been approved by the Governing Council which identifies three pillars or three criteria, if you will, that need to be satisfied in order for rates to be hiked. I don't want to insult you by repeating those three criteria, but I will actually! We have the inflation at target, which is 2%, well ahead of the projection horizon; we have, second, the durability so that we see it staying at target until the end of the horizon; and third, we need to see underlying inflation that is sufficiently strong to determine progress towards target. We will apply these three criteria at each and every step of the way, and we will determine if and when they are satisfied in order to possibly hike rates. But don't forget that we also have a sequence, and the sequence is that we will not hike rates until we have completed net asset purchases. So I think what comes first comes first; we have to look at net asset purchases. We are conducting a step-by-step guide of those net asset purchases. We will determine in March what is the assessment, on the basis of the data that is then available and we will see what pace, what speed, what amounts we will apply to this net asset purchase programme for the rest of '22.’

‘I will simply say that the geopolitical clouds that we have over Europe, if they were to materialise, would certainly have an impact on energy prices and, through energy prices, an increased cost throughout the whole structure of prices. It would also impact growth as a result of reduced income and possibly as a result of reduced consumption and deferred investment. The pure economic impact would certainly be more significant than what we are seeing at the moment in terms of prices. We are very attentive to that and by the way, we include that in our scenario when we prepare the projection and the work that is submitted to Governing Council members at the time of the next Governing Council meeting.’

‘…it's obvious that monetary policy has to continue to support the economy and you mentioned it yourself: the whole panoply of instruments that we use, that are currently working, is also explaining some of the good results that the economies are showing at the moment.’

‘On the upside surprise: we did not only use the word upside in relation to surprises; we used it in relation to risk. Risk is to the upside in our projection. We hardly ever – I'd have to double-check in the last 20 years, we may have in the past – but in the recent past we have not actually mentioned, we have not included in our monetary policy statement the characterisation of risks in relation to inflation. I think that is a very explicit indication that it might very well be significantly higher than what we had expected over the course of the year, and possibly higher than we had anticipated at the end of the year. Risk is to the upside, in particular in the near term.’

‘Actually we have not discussed TLTROs at all in this particular Governing Council meeting, and it's one of the items that I'm sure we will debate at our March meeting, or later actually. I think they end in June '23 if I recall, yes.’

‘I think I said that there was general concern around the table about inflation and the impact it has on our fellow Europeans. Equally, there was general consensus about the outcome of our decision. I wouldn't call it a monetary policy decision, so to speak, because what we are doing is we are continuing the normalisation of monetary policy and we are considering what will possibly happen and what options we offer ourselves, what optionalities will be around in response to the uncertainty at future monetary policy meetings. That's what we did in depth and very thoroughly today. There was general consensus on these issues around the table, I can assure you.’

‘Now, you asked me a question about the spreads: I would like to just observe that we are not seeing any such development. While yields have moved up, spreads have not widened in any significant manner. So we very much look into these matters very carefully and we have no reason to believe that it is going to be different. If it was, we are obviously going to respond and we have all the tools, all the instruments and the adequate flexibility if it is justified.’

‘It is the case that the very high inflation numbers that we observe are at least 50% caused by energy prices. Oil, gas, electricity and they all interrelate, gas having a stronger bearing than in previous years because of the price mechanisms depending on the length of contract and all the rest of it. I will spare you the details, but 50% of the current inflation is caused by energy prices. If the ECB was to first of all reduce and finish its asset purchases, and then raise interest rates in short order, do you think it would have any impact on energy prices? No, it is not in the ambit of monetary policy to decide the price of the barrel that is organised predominantly outside of Europe. Now, true that most of those contracts are in the US dollar currency but if I look at the significant appreciation/depreciation, it varies a little bit. The euro has depreciated a little bit. I don't want to be in the wrong numbers, but it's no more than 3% over the course of the last 12 months. I don't think that we can attribute to the European Central Bank the high cost of energy which impacts 50% of the inflation and the price paid by the consumers. Having said that, the European Central Bank and its Governing Council at large are focussed on its mandate, which is price stability. We are going to stick to the objectives that are set by the Treaty; that is price stability at 2% in the medium term. Believe me, as soon as it is required and the conditions are satisfied, we will act because it is our duty and we shall do so.’

‘Well, how do you hike interest rates? By hiking interest rates. And clearly, we will have a very sophisticated determined approach and analysis to doing that. We will only do that in the sequence that we have fixed for ourselves, and which has been agreed, which is that we will look at net asset purchases first, gradually, on a data-dependent basis. Then we will look at interest rates. … Shortly before is probably a little shorter than just before, and that again is going to be in the estimation of the Governing Council, data dependent, and based on the assessment that is conducted. I would say this: we are not there yet for the reasons that I have just mentioned, which are that we will be very faithful to our sequence. We are still conducting net asset purchases. We will stop the Pandemic Emergency Programme net asset purchases in March and then we will look at the net asset purchases under the APP. Don't assume too much in terms of the immediacy of hikes; we will not be complacent, but we are not going to be rushed into a process. We will follow the sequence that we have set for ourselves. We will verify the forward guidance criteria and we will be gradual in whatever we do.’

‘On the second-round effect, don't get me wrong: what we are saying is that we are not seeing wage increases that would be likely in the conditions of the markets as they are, where we are seeing unemployment as low as it has ever been, where we are seeing participation back to the level where it was pre-COVID, and where gradually the output gap is closing and there is less and less slack in the economy. We are waiting for that movement on wages and our duty of course is to make sure that through a second-round effect, that would not be addressed by monetary policy, inflation would run out of control and would spiral. This is not what we are seeing, and we certainly don't want to see it, but I am not here saying that there should be wage moderation. There is clearly an adjustment to be had which I am hoping we will see in the course of '22. That would be the economic logic of what we are seeing at the moment. By the way, as I am finishing on that question, I think we should be a little bit cautious about what I am hearing a lot, which is constant comparisons between the US and the euro area, the Fed and the ECB. We are really operating in different environments, with different economic data. Just to give you an example: our demand here in the euro area is pretty much back to where it was pre-COVID. In the US it is 30% up. Ask yourself why; this is because of this massive fiscal stimulus that the US economy has had, unlike the euro area, where it has been more moderate, not excessive and which is producing the sort of measured pace at which some factors are significantly improving.’

Schnabel (ECB):

09 February 2022

‘Raising rates would not lower energy prices. But if high current inflation threatens to lead to a de-anchoring of inflation expectations, we may still need to respond, as our mandate is to preserve price stability.’

‘The implications of the green transition for inflation are very important for monetary policy.’

‘Asset purchases under the PEPP are guided by the ECB’s capital key. In the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at any time.’

‘Our economies will benefit from a faster transition to renewable energy sources. This is mainly the responsibility of governments. But we are committed to doing our part, which will be reflected in our monetary policy operations.’

‘Monetary policy has to keep a watchful eye on all factors, including energy, that affect the medium-term inflation outlook. An extended period of high energy price inflation may lead to expectations of higher inflation in the future.’

‘Inflation will remain high for longer than anticipated. There is a risk that inflation continues to rise in the near term but it is likely to gradually decline towards the end of this year. There remains high uncertainty around the inflation outlook.’

‘Projections are always surrounded by uncertainty. But due to the pandemic and structural changes, the uncertainty around the inflation outlook is unusually high. You can trust us that we will take this uncertainty into account in our decision-making.’

‘In the 1970s rising oil prices triggered a harmful price-wage spiral, as inflation expectations drifted away. Today longer-term inflation expectations are well-anchored. We will ensure that high inflation does not become entrenched.’

‘House prices have risen strongly in the euro area, and monetary policy was one contributing factor. Macroprudential policy is the first line of defence but monetary policy needs to take financial stability and inequality considerations into account.’

‘Our primary objective is price stability. We are ready to adjust all our tools to make sure that inflation stabilises at our 2% objective over the medium term. But any adjustment to our policy will be gradual.’

‘Financing conditions must remain in line with inflation stabilising at our target over the medium term. We also need to ensure that our policy is transmitted to all parts of the euro area. Therefore, yields are an important input into our analysis.’

‘The monetary policy statement contained important changes regarding the upside risks to inflation and the need for optionality. The process of normalisation will be data-dependent and gradual, avoiding unnecessary disruptions.’

‘The euro area architecture is more resilient than it was at the time of the sovereign debt crisis, not least due to Next Generation EU which supports convergence across countries. The ECB has proven its willingness to act, if needed and as appropriate.’

‘According to the announced sequencing, we will end net asset purchases before we raise interest rates. Continued bond purchases would offset part of the impact of increasing policy rates. Moreover, asset purchases come with increasing costs.’

‘We need to minimise the risks of both – acting too late and acting too early. Besides supply shocks, we have to assess the strong developments in the labour market and their implications for medium-term inflation.’

‘We take people’s concerns about rising prices very seriously. You and all EU citizens can trust us that we will use all our instruments to stabilise inflation at our 2% target in the medium term.’

‘Negative rates reflect the low inflation environment before and at the beginning of the pandemic. Our policy is data-dependent. We continuously evaluate the monetary stimulus required for inflation to stabilise at our 2% target in the medium term.’

‘Staff forecasts are going to be updated in March. What matters for inflation is the growth in wages over and above productivity growth. We carefully monitor wage developments as they are crucial for the inflation outlook.’

‘Sovereign spreads are a feature as long as they are reflecting economic fundamentals. They are a bug when they become subject to destabilising self-fulfilling expectations, impairing monetary policy transmission.’

‘The pandemic has shown that, under stressed conditions, flexibility in the conduct of asset purchases can help to counter fragmentation. Therefore, flexibility will remain an element of our monetary policy during the PEPP reinvestment phase.’

‘Due to lags in policy transmission “transitory” shocks typically do not require policy action. They matter for monetary policy when there is a risk that they become entrenched in expectations, requiring policy action to protect price stability.’

‘If there is a risk that inflation expectations become unanchored, we need to take action even if the shock is exogenous. Currently, longer-term inflation expectations remain well-anchored.’

‘One reason for rising oil prices was the stronger-than-expected recovery across many economies, with demand outpacing supply. The large fiscal stimulus in the US was one factor driving the global recovery.’

‘The economy is recovering. The progress made towards our 2% inflation target over the medium term permits a step-by-step reduction in our asset purchases. We will reassess the implications of the incoming data for the inflation outlook in March.’

‘Due to the pandemic and structural changes in the economy, uncertainty around the inflation outlook is unusually high. If we judge that inflation will remain above our target over the medium term, the ECB will adjust its monetary policy, as appropriate.’

‘For a long time euro area inflation was below our target but it is now moving towards 2% in the medium term. Current inflation is painfully high – mostly due to high energy prices. We will ensure that it will not persist over the medium term.’

‘TLTROs remain an attractive source of funding for banks, supporting lending to firms and households. We will continue to monitor bank funding conditions and ensure that the maturing of operations does not hamper the transmission of our monetary policy.’

‘Inflation has risen mainly due to energy prices which we cannot affect directly. But we are seeing that inflationary pressures are broadening and becoming more persistent. Policy optionality is therefore more important than ever.’

‘We know that high inflation causes significant hardship for people who bear the rising costs of food, housing and transportation. We will make sure that inflation stabilises at our 2% target over the medium term.’

Visco (Banca d’Italia):

30 December 2021

‘Prices have been affected by the transient nature of factors such as freight and transport costs, which have risen sharply due to global supply bottlenecks. When the rise in energy prices - which has cyclical, structural and geopolitical causes - ends and when in Germany, for example, the effect of the VAT increase wears off, core inflation will return to the levels expected in the last exercise we conducted in the Eurosystem. After average increases of 3% next year, but gradually decelerating, then we will have prices growing just under 2%, so close to our target.’

‘There will be a reduction in the pace of securities purchases in the course of 2022, but these will not stop before the end of the year; therefore, the so-called "tapering" will not be completed until 2023 and very favourable financing conditions for the economy will continue to be maintained. We have also stated that the increase in official rates, which are negative, will take place later. The reason for this is precisely related to our inflation forecasts and the factors that we believe will prevail in the coming years.’

‘There is divergence in the Governing Council. The forecasts that we will fall below 2% in 2023-24 are obviously subject to both downside and upside risks. According to some of my colleagues, the latter may be prevalent. But we need to think about at least two of the underlying factors: one energy, the other related to company margins and wage growth. Now, on the latter, we have an assumption of 3% growth every year for the next three years. Let us remember that in the United States wages are rising by 4% and in Europe we are below 2%, as has been the case for the past twenty years.’

‘On oil prices, futures indicate that they are still high, but already down from their November highs. Gas is a different matter, because there is a very important geopolitical component. The high price levels of fossil energy cannot be compensated for by a reduction for everyone, because we are in a phase of ecological and energy transition. Moving towards renewables may lead to higher relative prices. Excessive costs for some categories, or for some areas of the Eurozone, can be compensated for by fiscal measures. The ECB's Governing Council will have to ask itself in depth about the relationship between relative prices and absolute inflation.’

‘At the moment, we do not see any second-round effects from energy prices prices - to which above all we owe the rise in inflation - on wages and margins, so I remain basically calm. I think the risks are balanced and not asymmetrical to the upside. In any case, we are all extraordinarily careful to check month by month what the determinants of inflation are, how they move: labour market, demand, wages.’

Knot (Dutch National Bank):

10 February 2022

‘Look also what is happening in many housing markets across the globe today. I don’t want to be a doomsayer here, but I mean, housing prices have gone up quite dramatically. That has all been predicated on a interest rate outlook which is subject to change, let me put it like that. So, I think we should be careful here.’

06 February 2022

‘I personally think that our first interest rate increase will take place around the fourth quarter. But this is an estimate that is constantly subject to change, and if new information comes to light, then of course I will adjust my estimate accordingly. … normally we take interest rate steps of 25 basis points ... and I have no reason to suppose that we will take any other step than that. … That will then be the start of what we call a tightening cycle of a number of steps, and each time we will look at what effect this step has had on the inflation outlook, and on the basis of the outlook, we will then look at whether more steps are needed. In any case, I expect the first two steps to be taken fairly quickly, because they are the steps that will get us out of negative interest rates, so they will follow each other reasonably quickly. Then it is still the case that if we do not get a wage-price spiral, and if inflation expectations indeed remain well anchored around our 2% target, then there is not so much reason for us to raise interest rates quickly and sharply. Again, we are not in the situation of the United States, where inflation is of domestic origin, where the wage-price spiral is also already taking place.’

‘I expect the first [rate] step this year, and then I would expect a second step sometime in the spring of '23, say.’

‘ …but we have several instruments, and before you can, say, put your foot on the brake pedal, you first have to take your foot off the accelerator, and that brake pedal, I call the policy interest rate hike. We currently have our foot on the accelerator, that is our bond purchase programme, which we must end as soon as possible because that is just fuel on the fire.’

The ECB ‘always looks at the spread between the countries in the Eurozone, and that the differences do not become too great. It's not that far yet.’

‘I now believe, based on this analysis, that at least for most of this year, inflation in the euro area will remain above 4%. … higher inflation during the actually by far largest part of this year of course, also has a spill-over effect into next year, so we now think that, all in all, increased inflation will last at least two years in total, measured from last summer, if not longer. … That is definitely not good news.’

Holzmann (Austrian National Bank):

30 January 2022

Whether inflation will go back down ‘is the big question. We don't know, but what we do know is why inflation has jumped so much. Remember, until last summer we thought we had problems with too little inflation. ... That is, until recently we had the problem of not reaching 2%. What is happening now - it is important to understand this - is that since last summer we have had a series of shocks: a shock in energy prices that has taken place, but also a shock in food prices, also due to energy prices. And this has led to inflation suddenly rising to 4 or 5%, contrary to all forecasts, because the shocks could not be predicted. Now the question is, starting from here, let's assume, let's hope that it will go down again. But the whole thing depends on the economic policy behaviour of the institutions in all countries. Meaning the following: if nothing happens, we expect it to go back towards 2% at the end of the year. But if the current shocks lead to excessive wage demands, or if individual companies push through their price demands, which are not justified, then second-round effects can occur. And these second-round effects can lead to inflation declining very slowly or even exploding as happened in the 1980s. And then it becomes very expensive, but also very painful. We at the ECB stand ready to take action. What we are doing at the moment, if you really want to, is looking millimetre by millimetre at how prices are developing, what the reasons for that are, to determine how and when we will act.’

‘The US is in an economic situation, in a cycle that is far ahead of the Europeans. The macro-economy by half a year or nine months, the financial cycle also. This means that what the US does, we will also do marginally. Second point is, the US has a much higher inflation rate ... And the third point is, the US, if you look at the history of the 70s, 80s, has known a very, very high inflation rate, which was extremely difficult to fight. This means that the US is inclined to act more quickly in order to prevent the difficult situation of the 1980s from occurring again. What that means for the ECB now is that we have a situation where we have an inflation rate that we don't like, far from it, but we have better prospects than the US to get back to the 2%. Also, if you look closely at the data, in the US there are already the first signs of wage inflation. We don't have that in Europe yet. This means that in the US we have to act more strongly to keep this at bay, which is not yet the case in Europe.’

‘[Y]es, we have inflation that is far too high for us, but at the moment, our calculations are still such that we will not yet reach the 2% for 2023 and 2024. That means that if we now had inflation rates that were high at the end of the year, 3%, with no chance to go down, then of course we would act.’

‘The energy transition will probably require a great deal of initial investment. These are gigantic sums, which unfortunately have not yet been properly estimated. And that means that there will probably also be price effects associated with it. This means that inflation will probably be higher for several decades in the future than the 2% we currently have.’

24 January 2022

‘It is probably the case that in 2022 inflation will not go below 2% ... probably we will be at 3% or more. So the question, if it goes back in ‘23 and ‘24 in the direction of 2%, what needs to be done in addition to what has been done now? ... That is, what has to be done now to rein inflation in a little bit, in what interest rate steps do you go up here? And here I think it will be the case that very large interest rate steps will not happen in Europe to the same extent as in the USA, which also has higher inflation rates. ... There is a lot to be said for saying, especially if inflation is high again in March and especially in June, that’s it, we will stop in three months' time and then initiate interest rate steps. And I have already tried to put a bit of pressure on and said that interest rate steps can also be taken before the programmes expire. ... This was actually rejected by my closer colleagues in the Council, but in the US this is already part of the discussion...’

‘Will inflation stay transitory, or .... will it stay high? We don't know. The ice age was transitory too ... We don't want it to last that long. But there is a lot of evidence that there are some transitory elements. Which ones will dominate, we don't know. But what we do know is that if we have uncertainty, then you hold back in making decisions, but on the other hand, late decisions can be very expensive. That's also why in the US, as in Europe, some people have gone out and said we need to take a foot off the gas a little bit quicker. ... Reacting too late can be very, very expensive.’

‘At the international level, there are many things we don't know. China worries me a lot, what's going to happen there in the next period economically, but also pandemically. The Fed is going to change. The Fed is still dominant. That means interest rate changes are going to hit us whether we do anything or not. That's an important point. But also the emerging markets. When the dollar raises interest rates, emerging markets start to sweat. And they've already had the pandemic, they had high debt before, and their health will spill over to us.’

‘We always try to be data-driven, and the next forecast is not until March again. Then we will have new data. And the question then in March and also in June is, what do we do if inflation is still as high as it is now? Do we say, “Well, we'll wait, it will get better?” Or do we do something? But what do we do then? Do we stop then, meaning we say the APP has to end now? And then with what frequency do we go into rate hikes? Like the Fed, we go up; so what are the interest rate steps that are then taken, and on the basis of what level? And one last point, which is very important then also: how quickly do we then say that we not only no longer buy new debt, but also repay the existing debt? Do we wait a bit, or do we do it immediately? And on the basis of which economic correlations do we base everything on?’

‘The energy transition will only work if the relative prices change, which also means ... that we still have no justification to know, if we rush into new technologies now, how much we have to invest here first in order to have lower prices, energy prices, in two, three or four decades compared to the current ones. ... The costs are very real, they have to be borne ... The assumption of zero inflation, energy inflation for '23 and '24 was something I also found out very late, but still ... criticised ... because it gave the impression that we could get below the 2% and then have monetary policy. I think that's something that won't work.’

‘Eventually it can happen, if it's been some time, some months, maybe some years. ... over 2%, that it comes to a de-anchoring ... If that's the case, of course then it will be difficult to get back with the instruments, but also … the credibility of monetary policy, so the central bank ... These inflation expectations are very, very important.’

Centeno (Banco de Portugal):

10 February 2022

‘I do not think that unconcerned is the adjective that should be used to interpret what I mentioned, but we need to look at the whole problem and understand that the best way for the country to continue to prepare for this change of cycle in monetary policy is the reduction of indebtedness, which is in fact happening, and which is projected for the coming years as necessary and achievable and desirable from the point of view of the State's budgetary and financial policy. Therefore, if we manage to achieve these goals, the word unconcerned may gain some life because in fact we are transferring it not from the result itself but to the actions that must be adopted. In other words, if we do what we have to do, we can face this situation with some reinforced confidence, certainly more than what we experienced five, six years ago.’

‘There is one thing that is not good: inflation above 2% is never temporary enough. We always get very anxious when these indicators exceed our targets, but we were already prepared for that. The change we made with the ECB's revised strategy envisaged that, temporarily, inflation could be above 2%.’

‘If it becomes part of the anchoring of inflation, what these effects mean in the context of monetary policy in terms of risk is very simple: it is a spiral, in fact, that reinforces every time wages are decided and those wages pass into prices. I think we have room in our economy to negotiate wages and not have those second-round effects. They are not yet visible. Just a few weeks ago, the CGD, which is one of the largest companies in Portugal, had its pay scales revised well below the values that are being talked about in Europe. In Italy there is also no evidence that this is happening. In some countries, and Spain and Belgium are two of the most cited examples, there is a mechanism that central banks don't like, which is wage indexation. We don't have any of that and we can do wage negotiations based on what the companies' interpretations are without that risk. The US is a completely different situation and the UK imposed a Brexit on itself which had a very negative impact on the labour market and removed hundreds of thousands of workers from the country. And this creates wage and price pressures that we don't have in the EU. We don't need to import problems that others have that, for us, simply don't apply.’

09 February 2022

‘In an environment of geopolitical tensions, pressure on energy and growth in demand and constrained expansion of supply we have higher inflation. Still, core inflation - which excludes energy and food - is 2.3%, and fell in January. Inflation expectations want to be anchored. One of the most used indicators to measure them, the 5-year swaps, are at 1.8%. We can say that for the first time in many years inflation is anchored. Second-round effects on wages have not yet been felt, at least for the time being, even though the limited labour supply constitutes an upward risk for inflation. After the temporary effects and the resumption of labour mobility in Europe, we anticipate a drop in inflation, which should converge in 2024 to values compatible with the monetary policy objective.’

‘We are entering a new monetary policy cycle. The period of generally low interest rates, some even negative, should be followed by a normalisation, a desirable process. Monetary policy, a macro policy, aims at controlling prices. But it will not be able to deal with geopolitical pressures, nor with decarbonisation. These are processes with temporary effects, but whose impact is not negligible. At this stage, monetary policy should keep all flexibility and all options open. It would be a mistake, comparable to those of the recent past, to give monetary policy the role of chasing after Mr Putin. The credibility of a monetary policy that responds to supply shocks and political tensions does not survive the first clash.’

‘On the contrary, in Europe, coordination with fiscal policy should maintain the spirit of 2020, while increasing its effectiveness. Analysts are often worried at turning points in policy. But it is worth remembering: in 2017 we were financing ourselves at 5% and Germany at 1% (with a 10-year maturity). Today the financing costs are much lower. The interest differential with Germany is about 80 basis points, it was over 400 basis points. The budget balance was still lurking at the limit of excessive, the requirement today is clearly within our reach. The ECB's purchase programmes have already had a break in the net purchase phase, at the end of 2018. At that time, 10-year rates were at 1.70%, which is well above what we have today. In other words, in that too, we are now in a better starting position. Interest expenditure is down 1100 million euros between 2019 and 2021. No one should have been convinced that interest rates would stay at 2020/21 values (were they?). But we have to keep the focus on our responsibilities and bring the debt quickly to near 120% in 2022 and improve on the 2019 figures the following year. And it is possible.’

Rehn (Bank of Finland):

10 February 2022

‘The strong but necessary response of monetary and fiscal policies to the pandemic has supported economic recovery. At the same time, the question is whether the measures have been oversized. Is the economy so hot now that it could lead to a long-term acceleration in inflation? On the positive side, the economic recovery in the euro area is continuing and employment is improving. At the same time, high prices for gasoline and food are felt in the wallets of many and cause concern for people. Euro area consumer prices have risen exceptionally fast, by 5.1% in January. There are three main factors behind the acceleration in inflation. Energy inflation explains more than half of euro area inflation. The escalation of the geopolitical situation is likely to keep energy prices high for a long time. Inflation has been accelerated by the normalization of private service prices as economies open in autumn 2021. The rapid recovery from the recession has exacerbated production bottlenecks and component availability problems and raised product prices. These drivers of inflation alone will not lead to a permanent, long-term acceleration, unless they cause large multiplier effects, i.e. a price-and-wage-spiral. Unlike in the United States, wage inflation has so far been relatively modest in the euro area. The development of wages is now being monitored particularly closely.’

‘The new monetary policy strategy of the European Central Bank was decided by the Council last summer: in the medium term, we are aiming for a symmetric inflation rate of 2%. At present, the medium-term outlook for inflation in the euro area is not far from that. Monetary policy decisions will not respond to short-term deviations of inflation from the 2% symmetric target unless they are expected to have a more lasting impact on inflation. However, if inflation threatens to accelerate excessively and in the long run, the ECB's monetary policy will work to prevent it by reducing purchasing and financing operations and raising key interest rates. This is how an independent central bank works, with the primary objective of price stability. In December, the Governing Council launched a gradual normalization of monetary policy. Net purchases under the Pandemic Purchasing Program (PEPP) will end at the end of March. At last week's meeting, we assessed that there are risks of a faster-than-expected acceleration in inflation. In a situation of uncertainty - I am also referring to the prevailing geopolitical tension and its potential effects on energy and growth - it is better to say, as the street says, that is, to proceed with the normalization of monetary policy, in particular gradually and step by step. Monetary policy is conducted consistently and flexibly, while maintaining room for maneuver. The Governing Council will use all its instruments to ensure that inflation stabilizes at the 2% target over the medium term.’

04 February 2022

‘The economic recovery in the Eurozone continues and inflation has accelerated. Barring a backlash in the pandemic or geopolitical situation, it would be logical for the ECB to raise interest rates next year at the latest. We will ensure that the rise in prices remains moderate in the medium term.’

The ‘gradual normalization’ of monetary policy was decided in December.

"On the positive side, the economic recovery in the euro area is continuing and employment is improving despite the Omicron variant. The bad news is that inflation will remain high for longer than expected, with rising energy prices and geopolitical tensions being the main drivers.'

‘I fully understand that higher energy prices weaken the purchasing power of households. If energy prices continue to rise for a long time, it is likely to increase inflationary pressures. Monetary policy has little effect on energy prices.’

‘So far, wage inflation in the euro area has been modest. At the March meeting, we will have a better understanding of inflationary pressures and, in particular, wage developments. Monetary policy decisions are always made on the basis of the most recent information available. I have suggested in the Council that data on wage developments be obtained more quickly from different countries.’

‘In March, we may also see more closely how Russia’s power policy has affected energy prices. However, I do not think that the tensions in Ukraine and Europe will ease quickly, but rather we should prepare for Russia's long war of nerves.’

Müller (Eesti Pank):

04 February 2022

‘Companies' assessments of the outlook for the coming quarters are very positive - demand for goods and services remains strong. The main constraint on growth is the supply difficulties of the various components. Unemployment in the euro area is already at an all-time low, although unlike in Estonia, the acceleration of average wage growth is not yet seen in the larger countries. At the same time, entrepreneurs in other countries are also complaining about the lack of specialists and skilled labour. And, of course, high energy prices are a concern. If they persist for a long time, they will take away most of people's income than usual. As a result, people and businesses will have less room to spend the rest - other goods and services will be bought less, and growth in the euro area could slow down.’

‘Contrary to expectations, price growth in the euro area accelerated further in January, reaching 5.1%. However, the reasons for the rapid rise in prices are still the same - the sharp rise in energy prices and the difficulties in supplying many goods. These problems cannot be influenced by central banks. However, for whatever reason, the European Central Bank needs to take into account that price pressures may be more persistent than expected a few months ago.’

‘In this context, it is important that a number of other central banks, led by the US Federal Reserve and the Bank of England, have already taken a much clearer stance on tightening interest rate policies. At the same time, it must be emphasized that the economic situation and the upward pressure on prices in America, for example, are different from what we see in the euro area. The extent and persistence of price pressures can be assessed through so-called core inflation, excluding energy and food price volatility. We see that core inflation in the euro area was 2.3% in January, while the US comparable figure is almost 5.5%. It is therefore understandable that the European Central Bank has somewhat more time to tighten monetary policy. But as recent price statistics show, this time may not be too long.’

‘All in all, of course, the rise in prices, which has remained close to 5% in the euro area for longer than was expected by the euro area central banks in December, is the best tone for discussions in the Governing Council. In this context, it is particularly important to emphasize that the European Central Bank is ready to adjust its plans for the near future if necessary. For example, in the Governing Council of the European Central Bank, we may review how quickly we complete bond purchases, which should have lasted at least until the end of this year. All indications are that it is time to move in a clear direction to reduce the European Central Bank's support for economic recovery.’

de Guindos (ECB):

10 February 2022

‘Exceptional fiscal and monetary stimulus has been essential in supporting the ongoing recovery of the euro area economy. While real GDP returned to its pre-pandemic level in the final quarter of 2021, growth moderated during that period and economic activity is likely to remain subdued in the early part of this year. However, we expect growth to rebound strongly over the course of 2022. Over the next three years, we anticipate that euro area growth will remain above its long-term average.’

‘As has been widely discussed, there has been significant volatility in the path of inflation since the start of the pandemic. Measures to contain the spread of the coronavirus (COVID-19) initially depressed inflation by curtailing economic activity. However, inflation has risen sharply in recent months and it has further surprised to the upside in January, reaching 5.1%. This is primarily driven by higher energy costs that are pushing up prices across many sectors, as well as higher food prices. Inflation is likely to remain elevated for longer than previously expected, but to decline in the course of this year. That is the central case, but there are upside risks to that outlook. Inflation could turn out to be higher if price pressures feed through into higher-than-anticipated wage rises, or if the economy returns to full capacity more quickly than foreseen.’

‘Our monetary policy measures have enabled us to successfully navigate the pandemic emergency. In view of the progress on economic recovery and towards our medium-term inflation target, at our February meeting the Governing Council confirmed the decisions taken at our monetary policy meeting last December. Accordingly, we will continue reducing the pace of our asset purchases step by step over the coming quarters, and will end net purchases under the pandemic emergency purchase programme (PEPP) at the end of March. At the same time, in view of the current high level of uncertainty, we need more than ever to maintain flexibility and optionality in the conduct of monetary policy. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at our 2% target over the medium term.’

‘Regarding the future path of our policy rates, our forward guidance on the conditions under which they will be raised is clear. To reiterate, we would need to see inflation reaching 2% well ahead of the end of the projection horizon and durably for the rest of the projection horizon. We would also need to judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term. Some other central banks have either already raised rates or indicated that they will soon do so. In making comparisons, it’s worth remembering that the euro area is at a different stage of the economic cycle, just as it was when the pandemic started. So it’s natural that central banks around the globe won’t necessarily start raising rates at the same time. We are guided by our forward guidance conditions and will act if, and when, they have been met.’

Wunsch (National Bank of Belgium):

26 January 2022

‘Looking at the more recent data, my reading of the inflation numbers we see now in the euro area is that they have very little to do with the policy we have been conducting, and it is hard to believe that leaving the economy in freefall would have been a good idea. My reading is also that higher inflation is a product of rising energy prices, and changes in consumer behaviour provoked by lockdown, social distancing restrictions and so on. These have contributed to a shift in demand away from services towards goods. As I see it, these have been the main factors leading to a return of inflation. I think it is important to point that out now, because some people seem to believe that we could have avoided the current inflation spike or that it would be the result of our policies. This does not mean we should not react if inflation remains above 2%, but I truly believe our reaction to the crisis was adequate. The difficult question is whether we can really get to the 2% target in a durable way. For almost a decade, we have been clearly below target, and now it appears that transitory higher inflation is going to be longer than expected. Are we going to securely land around 2%? To me, that remains an open question. We certainly want to go there, but we might again be dominated by events beyond our direct control that could push inflation either side of that 2%.’

‘What comes out of our models is that inflation will be slightly below 2% in 2023 and 2024. Then you can have long discussions about the accuracy of these models and whether they can capture the nature of the Covid shock. My reading of the situation is not focused so much on these issues. The real discussion should be whether the exact level of inflation will matter so much. Inflation will most likely hover around 2% – it could be 1.8% or it could be 2.1%. The question is, “Does it matter?” And that’s why I was not very comfortable with the forward guidance that we have, because forward guidance works best in a world where everything is evolving in a very gradual way. I would also favour forward guidance in a world perfectly reflected by models, where you start with inflation at 1% and inflation progressively goes up. That’s no longer the situation we are in today. We are at 5%, and there is a lot of uncertainty about inflation developments. So, what does it mean? We are clearly above 2% today; on average over a four-year period starting in 2021, we would be over 2%. I don’t know what it means to be on target or not when you have these fluctuations in inflation. Would it make a big difference if in our projections [for 2022, 2023 and 2024] whether we had 1.8%, 2.1%, 1.8%, or 2.1%, 1.8%, 2.1%? I don’t think it should matter much. I have some sympathy for those who say that “if we say today that we are on target, we have to raise rates, we have to hike on the basis of our forward guidance”. I wouldn’t hike today either. There is uncertainty, we are coming out of a situation where we had a long period of inflation below 2%. We should stick to our sequencing, starting with reducing, and then stopping, net asset purchases, and then we should start hiking. So if the focus is on 1.8% because we don’t want to say today that we are on target, because we want to gradually normalise policy, I’m fine with that. But I’m still a bit uncomfortable with this stress on 1.8% for several reasons. One, it’s not like our inflation forecasts have been that precise in recent years – we have to admit it and show some humility. The second reason is that we could convey the impression that it matters a lot whether inflation is slightly below or just above 2%. Either way, I would exit from an extremely accommodative monetary policy. If inflation projections start to fluctuate around the target, it can’t be the case that at 1.8% our response is negative rates and QE [quantitative easing], and when inflation reaches 2.1% we halt QE and take rates into positive territory. Then what happens if inflation falls back to 1.8%? We cannot have that kind of discontinuity when inflation is volatile. In this regard I am with [ECB executive board member] Isabel Schnabel when she says the green transition is going to create volatility. We are going to face bottlenecks on a regular basis, and these are not only going to come from energy prices. They could be related to new batteries, copper prices… In this environment, the concept of purity around 2% with inflation being stable cannot be taken for granted. We need to be open to the possibility that inflation is not going to be that well behaved. All in all, I am with those who think inflation will go down, although I don’t know whether it is going to end up below or over the target. I would say either way we have to figure out how to implement a gradual exit from extremely accommodative policies to less accommodative, and maybe, at some point, not accommodative anymore. If indeed we have a positive output gap, employment gap and inflation stabilises around 2%, we would have to adopt a more neutral monetary policy. In relation to our strategy review, I do agree that when you face a big shock with the real economy you need to overreact when you are close to the lower bound. That was unanimously decided during the strategy review. However, the problem is that we are moving to a world where the trade-offs, the negative impacts of ultra-loose monetary policy, start to appear in terms of financial stability, in terms of house prices… You also need to face facts. If you tried something for eight years and it did not work perfectly, you also need to take that into account. If you try something for that long and it still wouldn’t prevent below-target inflation, despite our accommodative actions, despite the pandemic boosting inflation to 5%, etc, then we might have to raise quite fundamental questions about the framework. But we are not there. The base case is that we are returning to our target, or very close to it within the projection horizon. If that materialises, it would be mission accomplished.’

‘The criticism [that the ECB has a poor record in forecasting inflation] is to some extent unfair. We use a wide set of models. But indeed, when you’ve had 10 years of low inflation, models do project low inflation. At some point, we need to recognise that, and be open to the fact that we might be confronted with structural changes. And if this is the case, it’s going to take 10 years for models to include that in their predictions. So, as to this criticism that our models are bad­ – OK, maybe, but how can you do it much better? For a number of years we’ve had core inflation very close to 1%, irrespective of the economic situation. The fact that models now do not capture big moves in inflation is largely unavoidable. But … I do agree that this means policy-makers need to take some distance, and maybe be less reliant on models. I would not want our monetary policy to be excessively reliant on a projection over a two- or three-year horizon, the quality of which we know is relatively poor. This would be way too mechanistic.’

‘There can be some discussion about whether we should be a bit faster or slower, but what is important to me is that based on our projections we start tightening. What matters is that we move away from an extremely accommodative policy to a less accommodative policy, and that we do it gradually. There will be different views regarding how fast this process needs to take place, that’s part of the game. As already mentioned, my concern is more about the narrative, that we insist so much that we are still below 2% at the end of the projection horizon.’

‘I am not very comfortable with forward guidance because it ties your hands to some extent: circumstances matter. Likewise, I am a bit afraid that by creating new instruments on a regular basis we are trying to anticipate a problem that we may end up not having – or not as initially foreseen. Instead, I would rely more on the fact that we proved in the past we could provide flexibility when required. That generally has been to secure the smooth transmission of monetary policy. By being too specific on these issues, you run the risk of tying your hands and being tested by the markets. I would rather maintain that we are ready to be flexible if needed. There is a fine line between securing the transmission of our monetary policy and letting the market price risks adequately. I would not try to hardcode it.’

‘We should make a big distinction when there is a crisis situation like the one created by Covid, when we were clearly below the target and there was a risk the economy would go down the drain. There was unanimity on what we did. I clearly agree with those that said the channel by which monetary policy was efficient were non-standard measures that facilitated a fiscal response. In these very specific circumstances, fiscal policy will make sure that you can protect your economy. But what is important here is that there was no explicit co-ordination. It just happened to be the fact that we wanted to support the economy, fiscal policy took the lead and ECB measures helped fiscal in providing an adequate response. But I would be very reluctant to extrapolate that complementarity in situations when the economy is doing well, and when labour markets are historically tight. Now is the time for fiscal and monetary authorities to remove some accommodation, to rebuild buffers. On the banking front we did that after the financial crisis of 2008. And, thankfully, during the pandemic, banks have been part of the solution rather than a source of instability. That is because we built a stronger banking system year after year. The name of the game now is for both fiscal and monetary authorities to rebuild buffers. I don’t want to be in a situation where we’re starting to normalise policy so slowly that you’re faced with the next shock when your balance sheet is still big. It’s not like we would run out of ammunition, but you risk building up ever higher levels of debt, at which point you would start facing financial stability risks.’

‘When faced with rising energy prices, if one thinks these are transitory, there is indeed a tendency to “look through” them when setting monetary policy. The challenge here is that temporary may be longer than what most expectations indicated a few months ago. So, some patience is warranted. But we cannot afford another five years of QE and negative rates. It would mean 13 years. We have a unique opportunity to re-anchor at 2%. If it does not work despite a gradual normalisation, if it lasts too long, then we have a structural problem.’

‘The theory says that when we’re faced with the lower bound you need to try a forceful monetary policy reaction to get back to target as soon as possible. When I became governor, my perspective was: if we just give it a try, and then another small try, it is going to be a never-ending story. So, ‘let’s give it a good try’. And I said it from day one: ‘if it works, fine; and if it doesn’t work, then I would not double the bets each time. So, the perception is that I have become more hawkish. But it is just that I believe it is time for a gradual exit after many years of very supportive monetary policy.’

‘Not really [concerned about the policy gap between the ECB and the Fed and the BOE]. We started with a lower inflation, our core inflation today is slightly above 2%, nothing dramatic. We know there have been some base effects such as the reintroduction of the VAT tax in Germany, and we believe energy prices at some point will come down. We need to see whether in the coming months there is indeed a decrease in inflation, or whether current levels last a bit longer than expected. If over the next quarters we have inflation surprises on the upside, then we may need to consider reacting faster. But I’m really fine with waiting to see where inflation is going before we get nervous. Again, if we look at core inflation today, and take into account base effects and energy prices, we are close to target. Over a one-year horizon, it’s not like we are wildly overshooting our goal and that the situation is not under control.’

‘Inflation dynamics, while of course being influenced by monetary policy, are driven by factors that we don’t fully control or maybe even understand. Taking strong commitments in these circumstances exposes you to surprises ‘on the ground’. Beyond that, I have never believed that the fine-tuning of inflation expectations is feasible or would have a major impact on inflation. The impact is relatively limited. I am also sceptical about our capacity to stick to commitments. For forward guidance to be really relevant, you need to commit to doing things you may not like to do. And then, as time goes by, it may appear that you indeed do not want to do what you have committed to. Forward guidance also tends to rely heavily on models and projections. This adds uncertainty beyond that of your reaction function. So, when the markets do not seem to agree with you, is it because they have another view on inflation or on what you intend to do? It is not always easy to tell.’

‘There was unanimity on our strategy review. A bit less on our forward guidance. And I was indeed one of the dissenting voices for reasons I already explained. But the idea that one should use unconventional instruments (or instruments previously referred to as unconventional) when close to the lower bound remains. And the idea that we should hike when inflation is expected to settle durably at 2% will also remain. The only case that is more difficult is if we would fall back to below 2% after a number of years above. I guess there will be various readings of the forward guidance then.’

‘If inflation rises above 2%, we all agree that we should hike. And we all agree it should be gradual. How gradual will depend on the inflation numbers.’

‘We are currently having quite a big energy shock. The transition to a greener energy mix does not necessarily need to lead to such high prices. Wholesale electricity prices have recently been higher than the cost of many forms of green energy or traditional power plants, such as gas or even coal, even with carbon capture. The hike in prices in three months’ time was more than we would expect from energy transformation over thirty years. However, I do believe that as much as we will try to engineer a smooth green transformation, this transition will entail some phases of higher volatility. We are likely to suffer under-capacity in some sectors of global value chains during the transition. I would expect prices in the goods energy sector to become more volatile in the future. Energy prices have always been volatile, but I would expect battery prices, and maybe the prices of commodities, to become more volatile. This transition is going to be difficult to co-ordinate. It may also mean that inflation will not durably set at any stable level.’

Vasle (Banka Slovenije):

04 February 2022

‘After a moderation in growth at the turn of the year due to a remarkable increase in the number of coronavirus infections, we expect favourable trends later in the year. Financial markets are characterised mainly by expectations of a faster withdrawal of central bank accommodation, with interest rates rising slightly as a result. Against a backdrop of excess demand and strong price pressures in the international environment, inflation in the euro area is at multi-year highs. The outlook for a moderation in the coming quarters is accompanied by increasing risks that it will remain at higher levels for longer.’

‘At the same time, we maintain the ability to react quickly to any change in the situation. The post-pandemic recovery in the euro area continues. Real GDP was 4.6% higher year-on-year in the fourth quarter of last year, bringing the level of economic activity back to pre-crisis levels. While economic growth has slowed somewhat in recent months due to congestion in global supply chains, high energy prices and a worsening epidemiological picture, we estimate that economic growth will rebound later in the year, despite high uncertainty. Thus, despite a temporary slowdown in economic activity, we estimate that the continuation of the post-pandemic recovery is not at risk and growth is expected to pick up later in the year.’

‘Rising energy prices and continuing bottlenecks in supply chains suggest that price growth, although expected to slow further over the course of this year, could persist at elevated levels for longer than expected. Although the main contributors to high inflation continue to be strong energy price inflation, broader inflationary pressures also remain elevated.’

‘Volatility in financial markets, while elevated, remains within expectations in the light of the unwinding of accommodative monetary policies. Borrowing costs for both sovereigns and the private sector have risen again, while equity prices declined in January 2022. Euro financial markets have continued to function well and liquidity is satisfactory. Recent data on euro bank performance also suggest that bank interest rates for households and businesses remain at low levels and lending activity remains encouraging, supporting the prospect of a continued economic recovery.’

Against this backdrop, we are continuing the gradual tapering of securities purchases set out in December, even after yesterday's meeting of the Governing Council members. In line with the December decisions, net purchases under the pandemic purchase programme will end at the end of March 2022. At the same time, monetary policy needs to maintain a sufficient degree of flexibility to respond in a timely manner to signs of sustained inflationary pressures. The members of the Governing Council are therefore ready to adjust all monetary policy instruments, if necessary, in order to stabilise inflation at the 2% target in the medium term.’

Stournaras (Bank of Greece):

24 January 2022

‘The European Central Bank is not going to tighten monetary policy because we are in a different phase of the economic cycle in Europe than America or Britain, for example. Even yesterday Mrs Lagarde made statements and said: "Don't expect the European Central Bank to raise interest rates this year". I absolutely agree. There are many reasons. For example, before the pandemic we all feared that we had fallen into what we call a structural recession in Europe, with very, very low inflation. Not too many things have changed. The pandemic increased inflation because it created barriers to production. When the pandemic goes away - which it seems to be going away - those barriers will be removed, so inflation will start to fall from the middle of this year. So, in Europe we see no reason why monetary policy should be tightened, apart of course from the gradual removal of the measures, the emergency measures for the pandemic.’

‘So, we are given a window of opportunity to get the investment grade. But we should hurry to get it, because the benefits of it outweigh the benefits we will get because of Greek bonds and the European Central Bank, as it will attract capital. … We, here at the Bank of Greece, do not rule out that it will happen towards the end of '22 and certainly in '23. As long, of course, as there are no negative external surprises.’

‘In '21 [Greek] growth will possibly surprise, perhaps approaching 9%. Here at the Bank of Greece, the latest estimates show that it will be around 8.5 to 9%. So, we will have very large growth in '21, but also in '22 our models show that 4.5 to 5% is possible. So, this growth will act as a bridge to the fiscal contraction that absolutely needs to be done, so that we do not have problems with the sustainability of the public debt.’

Scicluna (Central Bank of Malta):

03 December 2021

‘In the international financial markets there is no consensus whether the current inflation is transitory and that it will retreat to levels below Central Bank inflation objectives over the medium term or not. In any case, at the ECB, it is fair to say that the jury is still out. Within a fortnight at the Governing Council we should have a clearer picture of the outlook and the appropriate monetary policy decision is then taken.’

Panetta (ECB):

24 November 2021

‘[S]o long as higher short-run inflation does not feed into inflation expectations and wage and price-setting in a destabilising way, monetary policy should remain patient. We should not exacerbate the risk of supply shocks morphing into a demand shock and threatening the recovery by prematurely tightening monetary policy – or by passively tolerating an undesirable tightening in financing conditions. We should remain focused on completing the recovery, returning GDP to its pre-crisis trend, as the condition for achieving self-sustained inflation at our target in the medium term. To this end, we should keep using all of our instruments for as long as warranted, with the necessary flexibility to support the transmission of our policy stance throughout the euro area on its uncertain path out of the pandemic.’

‘The downside risks to economic activity may be growing. We should monitor the risk that a long-lasting negative supply shock prevents the economy from reaching full capacity. Globally, supply bottlenecks now appear to be slowing the recovery. That drag is affecting forward-looking indicators of activity in the euro area, which are plateauing and in some cases already pointing downwards. It may soon become visible in actual GDP growth. Supply-side disruptions and the uncertainty regarding the economic outlook also look to be weighing on the already unsatisfactory recovery in investment in major economies. In parallel, the rise in energy prices will likely pull back demand in the euro area: a 10% rise in oil prices typically reduces consumption by 0.28% over three years, and oil prices have risen by around 60% in 2021. Since energy demand has a low price elasticity, this could spill over into lower spending on non-essential services. In addition, rising energy prices may have important effects on firms’ employment decisions.’

‘[W]e should not forget that, regrettably, another major wave of infections is under way in the euro area, triggering renewed restrictions, some already introduced, with others potentially on the way. This could weigh on economic activity and, in particular, consumer confidence, further holding back wage demands.’

‘So, if the sources of higher inflation today do last longer, there is little or no evidence at this stage to suggest that they would feed into wage-price spirals or a de-anchoring of inflation expectations in the euro area. There are, instead, signs that they could weaken the recovery and reduce underlying inflation pressures. And we should not forget that in the last decade insufficient domestic demand growth in the euro area resulted in inflation that was persistently below our aim and in the accumulation of a price level gap that remains significant.’

‘All in all, on the basis of the available information, there seems to be little chance of sustained inflation above 2% in the medium term.’

‘[T]he surge in the number of infections and the renewed introduction of pandemic-related restrictions in some euro area countries mean that the pandemic is not over yet. … an inappropriate, sharp reduction of purchases would be tantamount to a tightening of the policy stance. Net asset purchases … need to be calibrated to help ensure we reach our target, avoiding an undesirable, premature increase in long-term interest rates. … so that we can continue to transmit our policy impulses across the entire euro area, the flexibility that has served us well in past months should become an integral element of our asset purchases. This will enable us to act – if necessary – in an environment where the exit from the pandemic may have asymmetric effects. We should not tolerate any financial fragmentation which could impede the transmission of monetary policy throughout the euro area.’

Makhlouf (Central Bank of Ireland):

10 February 2022

‘The economic outlook is positive. Economies are proving resilient to the pandemic, as each successive wave of the virus appears to be having a reduced economic impact. Inflation, however, is currently high, with the latest flash estimate for January of 5.1% released last week. It has been increasing since last year due to a variety of factors (which I have discussed previously), including higher energy prices, a recovery in prices for some goods and services that fell sharply during the pandemic, and a rebound in demand which is meeting global supply bottlenecks in both inputs and transportation. Energy prices remain the main driver. More than half of the recent increases in headline inflation come from energy price rises which have both a direct and indirect effect on the cost of goods and services. The direct effects on home heating or electricity and personal transport fuels – driven in particular by changes in international energy markets – tend to pass through quickly to consumers. Indirect effects occur via the impact on business costs and tend to be passed on more slowly and only partially to consumers.’

‘In deciding how to respond to inflation developments, monetary policy makers need to consider two things. First, what is the source of the inflation? And, second, what is the potential for more persistent inflation above our 2% target in the medium term? Identifying the source and understanding the current dynamics in inflation is critical in deciding the appropriate policy response. Strong increases in energy prices mean that the leading driver of current inflation has been from the supply side but monetary policy’s primary effect is through the demand side of the economy. As I said in November, constraining demand to bring it back into line with what might be a temporary supply interruption could depress incentives for supply to return and therefore be counterproductive. But we have also seen evidence of more broad-based price changes, beyond just energy prices. "Core" inflation in the euro area (that is, excluding food and energy) was 2.3% in January, up from 1.6% six months previously. Some of this reflects the slow pass-through of the indirect energy price increases I mentioned above, as well as other global supply bottlenecks. While our current expectation is for both headline and core inflation to fall over the current projection horizon (to end-2024), we pay close attention to developments in core inflation to help us form a view on inflation dynamics over the medium term. I also see developments in the labour market as central to our deliberations, in two respects. First, we need to track the extent to which cost of living pressures are reflected in wage demands, and in turn put more upward pressure on firms; costs and prices. And, second, the record low euro area unemployment of 7% in December (and projected to fall even further as job openings rise), this could also put upward pressure on wages and ultimately prices, as reflected in our December projection. Although wage growth in the United States has been robust in recent months (and inflation drivers there are not the same as those in Europe), we have yet to see strong evidence of this in the euro area (notwithstanding that our wage data comes with a long lag). Overall, I think it is fair to say that the risks to inflation- from many sources- are to the upside in the near term.

‘With the cost of living rising, and people having to spend an increasingly large share of their income on energy in particular, it can leave less money to spend on other goods and services. As President Lagarde outlined last week, there is unanimous concern among members of the Governing Council at the impact of high inflation on citizens across the continent, particularly those who "are most vulnerable, most exposed and who face the day-to-day hardship of having to put up with higher prices".’

‘Monetary policy is a lever that impacts aggregate demand. It is not an effective tool to deal with supply side drivers, or to address the distributional effects of inflation. If current trends in overall inflation persist, the case for monetary policy action becomes stronger. But we need to be conscious of the effects of tightening policy: constraining demand now to bring it back into line with supply would impact on inflation with a lag but there would be a more immediate trade-off in terms of growth and employment.’

‘The inflation outlook, as always, will be of key concern for the members of the Governing Council in the coming months. We need to be forward-looking in our analysis and assessment, while recognising and monitoring the extent of current uncertainties. These uncertainties are accumulating, including some unforeseen events towards the end of last year. Some will have a shorter-term impact on inflation, whereas others could prove to be more long-lasting. It will be important to remain data-driven in our assessment of the evolving inflation outlook and ready to take policy actions to ensure that inflation stabilises at our 2% target over the medium term.’

Šimkus (Bank of Lithuania):

26 January 2022

‘There is uncertainty, and I agree it has increased. But I don’t have evident facts that the projections have changed so substantially that we should start discussing whether the inflation outlook has changed to one that’s far beyond our 2% objective.’

Inflation developments are ‘more or less in line with our projections’, with risks ‘to the upside’.

The ECB’s policy path does not need to change ‘yet … If the question is what if the information changes and if the ECB is ready to act to the changed economic environment, then my reply would be yes.’

The ECB should end asset purchase programmes ‘shortly’ before hiking rates. ‘From a credibility point of view I think it’s important to keep that sequence. [But] I would refrain from putting a number of days or weeks or months on that time frame.’

Tensions owing to Russia are ‘an even bigger uncertainty’ than Omicron. ‘The situation adds uncertainty; if it escalates, it will obviously have an impact on our economies, on the Lithuanian economy, on the euro-area economy. We, Europe and the others need to find a decision leading to de-escalation, as further escalation means huge loss, and not only in terms of economic wealth but also losses in terms of lives.’

Herodotou (Central Bank of Cyprus):

23 January 2022

‘The ECB's interventions were very important for the recovery of the euro area. The ECB's monetary policy, combined with government loan guarantees, loan disbursements and other fiscal policy measures, has helped to mitigate the negative economic impact of the pandemic, but also to maintain low interest rates and generally favorable financing conditions. As a result, the rate of credit expansion in the euro area as a whole, but also in Cyprus, recorded a significant increase. In our country, the growth rate of net loans to non-financial corporations reached 4.2% in November 2021 compared to 2.1% in 2020 and 0.8% in 2019. At the same time, the assistance of the ECB's emergency temporary program for the purchase of assets due to a pandemic (known as PEPP) has amounted to € 1.59 trillion. until January 7, 2022 of which € 2.4 billion in Cypriot bonds have been purchased mainly by the CBC. This program has contributed to reducing the yield of Cypriot bonds from 2.25% in April 2020 to 0.82% in January 2022, i.e. significantly reduced the cost of government debt. As a result, the ECB's policy has helped reduce the cost of borrowing in Cyprus, while reducing the cost of repaying government debt has helped to facilitate liquidity from the markets to help Cypriot businesses and households directly.’

Kažimír (National Bank of Slovakia)

04 February 2022

‘Looking at developments in the euro area, it is important in my view to say:

  • I expect inflation in the euro area to remain at higher levels for longer than we expected
  • Risks related to future inflation are clearly upwards today
  • The fact that we have not tightened despite the surprises of the December and January inflation figures does not mean that we will delay the reaction
  • We will be wiser in March, we will have more data, we will know more about how the economy, the labour market is developing and how rising prices are turning into wages. We will also know whether geopolitical risks will ease or not.’

‘Further developments in world commodity markets will be a key issue. Current expectations in global commodity markets do not indicate a further significant rise in energy prices this year or in the years to come. At the same time, a gradual normalisation of the situation in global logistics, production and supply of raw materials and components is expected. Even if commodity prices do not fall, stabilising their level by definition means that inflationary pressures from this source will disappear.’

‘…the important thing is how fast prices are rising. The modest rise in prices is healthy and stable. Price growth at levels around 7% is not desired. The level that is fine is 2%. That is our goal, where we want to get inflation. We are doing everything we need to gradually be where we want to be and fulfil our mandate of price stability.’