ECB’s Centeno: Period of Zero Growth and High Inflation Seems Inescapable

11 March 2022

By David Barwick – FRANKFURT (Econostream) – It seems inevitable that the euro area will have to go through a period of zero growth and high inflation, European Central Bank Governing Council member Mario Centeno said Friday.

In a speech at a conference in Portugal, Centeno, who heads Banco de Portugal, said that the European monetary policy cycle was changing ‘gradually and thoughtfully’ and ‘should seek a more neutral and less accommodative position.’

The growth outlook was positively influenced by carryover, which ensured GDP growth of at least 2.1% this year even if the quarterly rate were negative in every quarter, he noted.

Centeno said that ‘a period of zero growth and high inflation seems inescapable.’

The conditions for the ECB to hike interest rates are not yet met, he said. ‘Core inflation, which excludes the more volatile components, is still dominated by external factors rather than supported by domestic factors such as wages’, he said.

‘Labour markets in the euro area show no signs of second-round effects, in fact the ECB's wage forecasts have been successively revised downwards’, he added.

Observing that the ECB had replaced the term ‘shortly after’ with ‘after some time’ in its forward guidance linking rates lift-off to the end of net asset purchases, he said: ‘We buy time and explicitly say that we should analyze the economic and financial data and outlook as we move from one phase to the next.’