ECB’s de Guindos: Monitoring Expectations Particularly Important Given Upside Risks

15 September 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Thursday warned again and again of the possibility that inflation expectations could dis-anchor against the backdrop of persistently elevated spot inflation readings and mainly upside risks.

In a speech at a conference in Lisbon, a text of which the ECB made available, de Guindos said that the euro area faced a ‘challenging outlook’, with private consumption set to ‘lose steam’, confidence ‘falling sharply’ and ‘very high inflation’ constraining spending and production.

Like ECB President Christine Lagarde at last Thursday’s press conference, de Guindos noted that August was the tenth month of record inflation in a row.

Although measures of longer-term expectations generally continued to point to inflation at 2%, ongoing monitoring for signs of dis-anchoring was warranted, he said. ‘This is particularly important because the risks to the inflation outlook are primarily on the upside’, he said.

‘With inflation at record-high levels, such an accommodative monetary policy stance is no longer appropriate’, he said. ‘Moreover, we need to ensure that inflation expectations remain well anchored until the current shocks have passed so as to facilitate the return of inflation to our medium-term target.’

De Guindos echoed colleagues in declaring the ECB’s approach to policy to be data-driven and meeting-by-meeting.

Yet a third and a fourth time, he suggested that expectations were subject to dis-anchoring.

‘Monetary policy needs to be focused on price stability and on delivering our inflation target over the medium term’, he said. ‘Determined action is essential to keep inflation expectations anchored, which in itself contributes to delivering price stability and avoids second-round effects in inflation. The main asset that central banks have is credibility, and this asset becomes even more important in times of high uncertainty.’