Christine Lagarde (R), European Central Bank (ECB) Governor, Luis de Guindos Vice Governor (L)
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Rising consumer prices have become a problem of growing concern about financial markets. Inflation has reached levels above central bank targets, and money managers are skeptical about whether simple monetary policy is the right approach. This is no exception in the euro area.
“Temporary things suggest that you don’t have to worry, but I don’t know if you should.” George Buckley, Nomura’s chief economist in the UK and Eurozone, told CNBC Wednesday. Said.
He suggested that it remains unclear whether rising inflation in the euro area will leave a permanent mark on the economy.
The data released on Tuesday Inflation has reached historic highs With a block of 19 members at 4.9% in November. The ECB’s policy is to work towards 2% inflation in the medium term.
So far, the central bank has stated that it expects inflation to fall throughout 2022. This suggests that relatively loose monetary policy is still needed. However, there are growing questions about whether this period of high inflation will last longer than the ECB expects.
Inflation is projected to reach 2.2% at the end of the year, according to the ECB’s forecast for September. 1.7% in 2022 and 1.5% in 2023. These estimates will be revised shortly.
Inflation expectations could be boosted by rising energy prices, ongoing supply chain problems, and more recently, the emergence of new Covid-19 variants.
Nomura’s Buckley said that the longer inflation lasts, the more markets the central bank will feel needs to do about it. This is because higher inflation puts more pressure on monetary tightening policies.
“The ECB doesn’t have to retire’temporarily’, but it needs to communicate in a more subtle way about short-term temporary factors and potential long-term factors that drive inflation,” ING Research said. Carsten Brzeski, Global Head of Macross, said. I said by email.
He should admit that the ECB is too naive when it comes to pass-through from producer prices to consumer prices, so it should be noted that it sounds confident about other traditional relationships. Added.
The issue of a clearer message was raised earlier.
In the wake of the ECB’s final meeting in October, Gavekal Research’s European analyst Nick Andrews said President Christine Lagarde “failed gloomyly” to throw cold water beyond market expectations for a 2022 rate hike. rice field.
“At Wednesday’s closing price, the short-term interest rate market was priced at a 23 basis point increase by December 2022. By the end of Thursday’s Lagard press conference, it was a 32 basis point increase. “. Email.
Going forward, ECB watchers hope that the central bank will continue to emphasize next year’s inflation easing.
“The ECB is expected to suggest that not only is inflation expected to’decrease’in 2022, but it also emphasizes the upward risks to the inflation outlook,” said Frederik Du Closet, strategist at Pictewealth Management. I have. “
He added that financial institutions may point out that “inflation rates are not as fast and slow as expected.”
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