ECB’s de Guindos Repeats No Stagflation, Must Watch 2d-Rd Effects and Inflation Expectations

22 March 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Tuesday stuck to a reiteration of previously expressed views regarding the impact of Russian aggression on growth and inflation and key considerations for monetary policy.

In remarks during a panel discussion in Athens, de Guindos said that Russia’s assault on Ukraine would increase inflation, which would now ‘be higher for longer’. While there would be a growth effect, ‘[w]e can so far dismiss the possibility of stagflation’, he said, pointing to growth projections, though he added that ‘extremely important is the policy response’ to the economic fallout.

‘The first line of defence has to be fiscal policy’, he said. European authorities would hopefully adopt relevant positions in the coming weeks, he said.

From the point of view of monetary policy, the potential for the emergence of second-round effects is ‘the key aspect that we have to consider’, he said. The other factor requiring monitoring is ‘the possibility of a de-anchoring of inflation expectations’, which has so far not occurred, he said.