ECB executive warns green energy push will drive inflation higher

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Policies to tackle climate change are likely to keep energy prices longer and may force the European Central Bank to withdraw the stimulus sooner than planned, one senior executive warned.

Isabel Schnabel, an ECB executive responsible for market operations, said the planned transition from fossil fuels to a more environmentally friendly low-carbon economy “provides measurable upward risk to the baseline inflation forecast over the medium term.” Said.

After the economy recovered from the effects of the coronavirus pandemic, inflation rose to 5% in December due to sharp rises in energy prices. Record high For the euro area. However, the ECB predicts that energy prices will fall and promises to maintain ultra-loose monetary policy for at least another year.

However, inflation in the green energy transition could force central banks to rethink this position, Schnabel said. Busy Through a video link to the American Finance Association’s annual meeting on Saturday.

“In order to ensure price stability in the medium term, monetary policy may need to break the general consensus that energy prices should look up,” Schnabel said.

Energy prices in the 19 euro-sharing countries rose 26% year-on-year in December, approaching record highs last month.Natural gas prices hit Record high In November last year, wholesale electricity prices reached € 196 per megawatt hour in the region, almost four times the pre-pandemic average, according to ECB executives.

“In the past, energy prices have often risen and fallen at the same time, but the need to strengthen the fight against climate change means that fossil fuel prices need not only continue to rise, but continue to rise. It may mean that there is a need. Achieve the goals of the Paris Climate Change Agreement, “Schnabel said.

A German professor of economics who joined the ECB board two years ago Voice critic Among executives in a vast bond purchase program that has acquired a portfolio of € 4.7 trillion assets since it was launched seven years ago.

Last month, the ECB announced that it would “step by step” reduce asset purchases from € 90 billion a month last year to € 20 billion a month by October, in response to concerns about sharp price increases.But other central banks, including the US Federal Reserve and the Bank of England, are tightening policies more quickly, critics say. ECB You need to do the same.

ECB asset purchase € bnG2050_21X

Schnabel outlined “two scenarios in which monetary policy needs to change course.” The first is when consumers expect high levels of inflation to continue due to sustained rises in energy prices, creating a 1970s-style wage-price spiral. But she said wages and union demands “so far” “remain relatively calm.”

The second scenario is to increase inflationary pressure, as policies addressing climate change, such as carbon taxes and measures to compensate poor households for high energy costs, suggest that recent research is already taking place. If it turns out.

The ECB CEO Philip Lane seems to be against it.he Said RTE, an Irish broadcaster on Friday, said rising energy prices were a “major concern” but “less upside this year” and “supply will shift this year and pressure will ease overall. It should be. ”

Like most central banks, the ECB is amazed at its upward sustainability Price pressure.. Last month, it significantly raised its eurozone inflation forecast to 3.2% this year, but expects it to fall below its 2% target next year.

However, Schnabel said that this assumption was “derived from the futures curve” and that energy prices would not contribute to overall inflation over the next two years, “these estimates could be conservative. There is sex. ” If oil prices stayed at November 2021 levels, she said the ECB would be sufficient to reach its inflation target in 2024.

Video: Automobiles, Companies, Countries: Competition to use electricity

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