The European Central Bank is concerned that euro-zone inflation is rising above its own expectations, a senior ECB official has admitted. However, Europe’s monetary authority is not ready to raise interest rates at this point, the executive revealed.
ECB sees no reason to adjust interest rates despite eurozone inflation hitting 5%
Annual inflation around Europe’s common currency, the euro, rose for the sixth straight month to a record high of 5% in December, according to preliminary estimates from Eurostat, cited by Trading Economics. The last time inflation fell was in June, when it fell to 1.9% from 2% in May.
Source: Trade Economics
“We view these figures with some concern as they are higher than we originally expected,” commented Isabel Schnabel, member of the ECB’s Executive Board, in a recent interview with the Süddeutsche Zeitung. The official also acknowledged the concerns of many people in Europe about falling real wages and interest income.
Nevertheless, Schnabel made it clear that the regulator is not ready to raise interest rates in the euro zone for the time being, citing forecasts that suggest a “significant decline” will follow the inflationary surge caused by the global pandemic. The banker also indicated that the ECB should avoid stalling the economic recovery, stating:
In our projections, medium-term inflation is even falling back below our 2% target, although we acknowledge that the projections are now surrounded by large uncertainties.
European Central Bank must act if inflation stabilizes above 2%
The representative of the executive body of the ECB also assured that the central bank of the euro area “will act swiftly and decisively if we conclude that inflation may be settling above 2%”. She noted that a precondition for raising rates is to end net asset purchases.
As a first step in this direction, Schnabel described the Governing Council’s decision in December to gradually reduce it in the coming quarters. It is planned to end March 2022 as part of the pandemic emergency purchase program.
The officially rejected criticism that the ECB’s inaction reflects the fear that the euro debt crisis could flare up again, especially in countries like Italy, if interest rates were raised. “Our actions are guided exclusively by our price stability mandate. Public borrowing by individual countries does not affect the decisions of the Governing Council,” she stressed.
The Eurostat data and Schnabel’s comments come as other major economies are also seeing rising inflation following measures to deal with the economic fallout from the Covid-19 epidemic. Figures released Wednesday by the U.S. Department of Labor showed the consumer price index rose 7% over the past month, Bitcoin.com News reported. That’s the largest annual increase in the last four decades.
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common currency, COVID-19, currency, debt, ECB, epidemic, euro, euro area, Europe, European Central Bank, Eurostat, Eurozone, board, forecasts, Governing Council, inflation, inflation rate, interest rate, interest rate, interest rates, Italy, member, Pandemic, prices, forecasts
Do you think central banks around the world will eventually raise interest rates in response to rising inflation? Share your expectations in the comments section below.
Lubomir Tassev
Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchen’s quote: “Being a writer is what I am, not what I do.” Along with crypto, blockchain and fintech, international politics and business are two other sources of inspiration.
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