ECB – Inflation Brings Changes to Monetary Policy

The ten-year record for euro area inflation – 3% in August from 2.2% in July and structural inflation (excluding energy and food) rose 1.6%, the highest since 2012 – is now key area of ​​controversy and strong arguments for proponents of restrictive monetary policy.

Their arguments are reinforced by the recently announced inflation in Germany and France respectively. It seems that the ECB underestimates the risk of higher inflation and given the comments of the Fed, which in turn is looking at accelerating the implementation of tapering policy.

The ECB forecasts that inflation will move to 1.9% but will be temporary while it expects inflation to move to 1.5% (202) and 1.4% (2023).

Trust Economics forecasts inflation to move to 2.2% in January (2022) while if there is no economic shutdown inflation will move to 1.9% at the end of 2022 to 1.7% in 2023. But if there is an economic shutdown then the corresponding sizes will show a slight downward correction.

The Eurozone retail sector will raise prices for the next three months, signaling to consumers to cut spending. Only a generalized economic shutdown that will reduce demand-consumption will keep prices down and given that news of the pandemic mutation front is not pleasant.

Given the slide of the euro and falling bond yields, tapering monetary policy should be implemented sooner rather than later in the year or early 2022.

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TRUST ECONOMICS

Trust Economics is a specialized independent economic research, analysis and consultancy business. Our team provides ingenious analysis in the macro & micro economic field, in the field of financial market, regional and sectoral analysis equally, forecasts, consultancy, specialized studies-research/projects from its headquarters in Athens, Greece.

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