ECB’s Escrivá: Risks to Inflation Baseline Slightly Tilted to the Upside

16 December 2024

ECB’s Escrivá: Risks to Inflation Baseline Slightly Tilted to the Upside
José Luis Escrivá, governor of the Bank of Spain, at the European Central Bank Governing Council meeting in Ljubljana, Slovenia on October 17, 2024. Photo by Adrian Petty/ECB.

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member José Luis Escrivá said on Monday that risks to inflation were more on the upside than to the downside.

In a speech at the annual meeting of the Asociación de Mercados Financieros, Escrivá, who heads the Banco de España, said that ‘if we focus on all scenarios [for inflation], we could conclude that risks to the inflation baseline scenario are slightly tilted to the upside.’

The potential for higher inflation in the euro area outweighed the potential for lower inflation, he said.

‘Despite the fact that economic activity, through aggregate demand, could generate downward pressure on inflation, models end up showing there is a more dominant pressure’, namely a possible trade war, he said.

‘A trade war and the uncertainty it brings about is not very different from the breaking of supply chains and we know perfectly well that this is an inflationary mecanism’, he said.

If this ended up being the dominant force for inflation, there would be ‘some effect’ on HICP, he indicated.

Wage growth would hopefully moderate and help bring down persistent services inflation, Escrivá said.

‘But we are also seeing that there are some labour markets in which there is a shortage of skilled workers, and that could keep exerting pressure on salaries’, he said.

The persistence of services inflation thus remained an element of caution for the ECB, Escrivá said.

The ECB should maintain its data-dependent approach but in the future should think of a new way of communicating uncertainties, he said.

‘We can take a step further, qualitatively cite elements to the downside or the upside of our baseline scenario and give a weight or a number to each one of them’, he said.

 

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