The European Central Bank is expected to raise inflation expectations again
European Central Bank policymakers expect the central bank to raise its short-term inflation forecast next month, because there is still uncertainty about the speed of response to price spikes.
As the economy rebounds from the coronavirus pandemic, the European Central Bank has been underestimating the rate at which inflation in the euro zone will rise this year. According to reports, members of the Central Bank Management Committee stated that they expect to raise their forecast for 2022 again in December. summary Minutes of the October meeting released on Thursday.
However, the members of the board of directors agreed that there is an “increased” uncertainty in the price growth prospects in 2023 and 2024, which is one of the main standards that the central bank will use to calibrate bond purchases and interest rates next year.
They believe this means that they should maintain the “selectivity” of future bond purchases for as long as possible, so that they can react when inflation falls below or above the target.
“While the increased upside risks to inflation must be acknowledged, the board believes that it is important to avoid overreaction and unfounded inaction, and to maintain sufficient selectivity in adjusting its monetary policy measures to respond to all inflation scenarios. It may unfold,” it says.
Eurozone inflation hit a 13-year high of 4.1% in October, well above the European Central Bank’s 2% target, prompting some investors to bet that the European Central Bank will raise interest rates next year.
But the Council of the European Central Bank agreed last month that many of the factors driving up inflation this year — including soaring energy prices and supply chain bottlenecks — may subside next year, albeit at a slower pace than recently predicted.
“Members generally agree with the hump-like pattern expected in the short-term inflation outlook,” it said.
The European Central Bank is getting Divergence Other major central banks such as the Federal Reserve and the Bank of England responded to the recent surge in inflation by promising to tighten policy.
Investors are looking forward to the ECB meeting in December. Most people expect the central bank to decide on its 1.85-ton bond purchase plan launched last year in response to the pandemic, and it will stop new purchases in March 2022.
However, it is widely expected that the central bank will strengthen its long-term asset purchase program to mitigate the impact of cuts in stimulus measures.
Some more conservative council members believe that if inflation does not fall as expected, the European Central Bank should be prepared to stop buying new bonds soon next year.
However, others urged patience, noting that there are few signs of a spiraling wage.
The European Central Bank stated that its board members concluded last month that they “must be patient in the face of increased uncertainty”. “The management committee should maintain sufficient options to allow future monetary policy actions, which is considered important.”
Morgan Stanley’s European Economics Director Jacob Nell said that the minutes of the meeting, coupled with the risks of the recent coronavirus lockdowns in several European countries, indicate that the European Central Bank may choose to “steadily reduce purchases” at its December meeting. , And maintain selective “meetings.”
Fabio Barboni, senior economist at HSBC, said: “With the widening of the internal division of the management committee and the huge uncertainty of the medium-term inflation outlook, the European Central Bank may not be able to promise further support for a long period of time.”