ECB, inflation will be revised upwards. More Persistent Risks By

© Reuters.

By Alessandro Albano – The euro area economy continued to grow in the third quarter but recent developments will lead to an upward revision of inflation and a downward revision of GDP at the next meeting in December. This is what we read in the published Thursdays.

Although the Governing Council has assessed the risks to the economy as “broadly balanced”, the minutes read, supply bottlenecks and rising energy prices remain “the main short-term risks to the pace of the recovery. and the outlook for inflation “, and if they last longer” they could slow down the recovery. “

The board then discussed the concept of “stagflation” in relation to the risks to the economic outlook, recalling how the exit from the pandemic crisis has led to a rise in inflation and a downward impact on growth through “disposable income. lower real and higher costs “.

In reiterating the concept of temporariness of the causes of inflation, with a decline expected in 2022, the normalization of prices will now take “longer than expected”, with the risks already expressed in the September meeting that have “tilted upward”.


In confirming the current monetary policy to “converge towards the symmetrical inflation target of 2%”, some board members indicated that the stimuli will have to be “reassessed in view of the improvement of the inflation outlook and carried over time towards a more neutral configuration “.

Speaking of market expectations on rate hikes, according to the ECB the significant increase in maturities, even in the medium term, suggested that market participants “believed that the conditions for interest rate hikes would be met sooner than expected. by the Governing Council “.

In this context, it was noted that there is “a gap between the future path of inflation implied in the inflation swap markets and the bank projections made in September”.

Forward guidance

To justify the “moderate pace” of the PEPP and the idea also expressed by Lagarde at the press conference on rates, the board had to reaffirm the forward guidance advanced last June and its assessment that, “while inflation would have taken longer time than expected to decrease, in the medium term it is expected to remain below the 2% target “.

In this context, it is specified, “it was necessary to underline the medium-term inflation prospects and the Governing Council’s determination to act vigorously and persistently, in line with its revised monetary policy strategy, to firmly anchor inflation expectations. to its 2% target. “

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Zach Shipman

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