Frankfurt The Ukraine crisis is also driving the European Central Bank (ECB) ahead of its forthcoming interest rate meeting. At the Governing Council meeting on March 10, a comprehensive assessment of the economic outlook will be made, including the latest geopolitical developments, ECB chief economist Philip Lane told the FAZ, according to the preliminary report.
These would not only affect oil and gas prices, but also investor and consumer confidence and trade. “So in terms of inflation, there’s not just the mechanical effect of commodity prices,” Lane said. The medium-term outlook for inflation would also need to take account of the macroeconomic implications. The geopolitical tensions are currently “a very important risk factor, especially for Europe”.
In a time of much uncertainty, one shouldn’t make absolute statements, Lane said. “However, the data certainly suggest that we might move closer to our medium-term inflation target.” Then the ECB would have to act: “If the rates move towards our target in the medium term, which is currently more likely, we will adjust monetary policy.”
For example, the ECB would then no longer need to buy bonds to stabilize inflation at its target value in the medium term. In any case, before the central bank talks regarding a possible interest rate decision, it must end the purchases.
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The overall situation is such that a strong recovery in the European economy is expected, Lane said. However, inflation rates are higher than expected and will last longer than originally thought. This is mainly due to the increased energy prices and the supply bottlenecks. But the longer the source of the shock persists, the more the price level will be affected overall. “We are therefore revising our assessment of the sustainability of inflation in this regard.” However, the central bank still expects inflation rates to fall over the course of the year. However, it is uncertain how quickly and how far this will go.
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