ECB’s de Guindos: Price Pressures Spreading Across More and More Sectors

21 September 2022

By David Barwick – COLOGNE (Econostream) – European Central Bank Vice President Luis de Guindos on Wednesday warned of growing price pressures and called still-accommodative monetary policy inappropriate.

In a speech at the AltamarCAM Insurance Summit, de Guindos said that inflation was ‘likely to stay above target for some time’.

‘Price pressures are spreading across more and more sectors … and most measures of underlying inflation have risen further in the last months’, he said.

Even after the Governing Council’s decision two weeks ago to hike rates by 75bp, which he said should be understood in the context of the updated staff forecasts, ‘monetary policy is still accommodative’, he said. ‘This is no longer appropriate.’

The ECB has to keep inflation expectations anchored, he said. ‘We need to guard against second-round effects as a consequence of an upward shift in inflation expectations’, he said.

The Governing Council will set policy ‘in light of incoming information’, on a data-drive, meeting-by-meeting basis, he said.

‘The number and the size of hikes will depend on the data that we will receive in the future’, he reiterated during the Q&A.

As for growth, de Guindos warned that ‘[t]he economy is expected to stagnate later in the year and in the first quarter of 2033.’

‘The risks to growth are on the downside … while the risks to the inflation outlook are primarily on the upside’, he said.

Even an economic slowdown ‘is not going to take care of the necessary slowdown of inflation’, he added during the Q&A. ‘I think that monetary policy has to make a contribution as well’ to restore price stability.

De Guindos said that his primary concern was the Russian war of aggression in Ukraine, with inflation his ‘second main concern.’ High inflation could lead to undesirable political outcomes due to public worries about high prices, he said. That did not refer to any specific country, he noted.

Asked about the euro, de Guindos repeated the ECB’s mantra of not targeting a particular exchange rate. Still, he said, it is ‘one of the most important variables, economic variables, and we have to look at it very carefully, because it can have an impact on growth and inflation.’

He attributed recent exchange rate developments primarily to the war, to monetary policy differences across jurisdictions and to energy-related factors.

In other comments, de Guindos sought to ‘stress that positive element’ with respect to Italian developments. ‘Italy has been outperforming’, he said. Fiscal policies of the last two to three years show Italy to have ‘been quite responsible’, and the country’s use of European funds has also been good, he said.

He said he did not know what the level of the natural rate of interest in the Eurozone was.