By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Fabio Panetta said on Saturday that the main risk for inflation in the medium term was undershooting the 2% target. 

In a speech at the 31st Assiom Forex Congress in Turin, Italy, Panetta, who heads the national bank, said that ‘the available indicators seem to suggest that the predominant risk remains inflation falling below 2% over the medium term.’ 

If the scenario of the December projections materialised, ‘less decisive’ interest rate cuts could lead to undershooting inflation in the medium term, he said. 

Panetta did not appear to be overly concerned about importing inflation from the US due to President Donald Trump’s tariff policies, suggesting that raising these levies would not have a significant impact on European inflation. 

‘The tariffs could produce upward pressures linked to a depreciation of the euro against the US dollar and to possible retaliatory measures from the EU’, he said. 

‘However, these effects could be offset by a slowdown in the global economy and by China diverting its tariffed goods to European markets’, he said. 

The net impact of US tariffs would be limited or even ‘slightly negative’, according to Banca d’Italia’s estimates, he said. 

The latest inflation uptick did not come as a surprise and could be explained by base effects related to energy, he indicated.

‘Overall, there are reasons to assume that inflation will settle at 2% over the medium term, in line with the latest Eurosystem staff projections’, he said. 

Monetary policy was still restrictive, according to Panetta. 

‘The reference rate is still higher than the estimated neutral rate, namely the level consistent with the absence of inflationary pressures and with potential economic growth’, he said. 

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