Eurozone inflation will not be as temporary as expected, admits De Guindos – Monetary Policy

Vice President of the European Central Bank (ECB), Luis de Guindos, decided to speak on Thursday about the “elephant in the room” and was clear: “[afinal] Inflation in the eurozone is not as temporary as forecasts estimated a few months ago,” said Christine Lagarde, No. 2, during an event promoted by Swiss bank UBS.

However, the Vice-President of the European Central Bank insisted on justifying that this statement is not a step back, but an acknowledgment of changing circumstances.

“The reasons for this change are simple: constraints in supply chains are more stable than we expected, in addition to the fact that energy costs will remain very high,” said Luis de Guindos.

Despite everything, the Spanish economist stressed that expectations for inflation in the eurozone this year and in 2023 and 2024 are still “on the table”.

In November, annual inflation in the eurozone was 4.9%, the highest since the series began in 1997, according to Eurostat data. The European Central Bank expects prices to rise by an average of 3.2% this year, and 1.8% in 2023 and 2024.

In mid-December, shortly after his US counterpart Jerome Powell admitted that inflation was “not temporary,” Christine Lagarde, while presenting the central bank’s 2022 strategy, made it clear that she wanted to allow room for maneuver to adjust debt purchases. Depending on the evolution of the pandemic and recovery from it.

“Resilience will continue to be an element of monetary policy. Given the uncertainty, we want to have as much flexibility and choice as possible,” Lagarde said at the time.

The European Central Bank announced that in the first quarter of 2022 it will make net purchases under the Pandemic Emergency Purchase Program (PEPP) at a slower pace than in the previous quarter. As for interest rates, the former French finance minister has indicated that won’t happen this year, widening the spread against central banks in the US and UK.

Belgian Governor Pierre Wanche – one of the “hawkish” members of the Board of Governors, considers that the ECB “may lag behind other central banks in fighting inflation if it does not adopt a more restrictive policy”.