ECB could apparently reach inflation target by 2025

ECB headquarters in Frankfurt

The central bank rejects a report on statements made by its chief economist.

(Photo: AP)

Frankfurt The European Central Bank (ECB) has denied a media report that it could reach its inflation target of two percent by 2025. ECB chief economist Philip Lane explained this in a private conversation with German economists, reported the “Financial Times” (FT) on Thursday. The ECB contradicted the representation.

Lane told economists, according to the FT, that the medium-term reference scenario of the ECB shows that inflation should land at two percent shortly after the end of the current forecast period. The ECB has not yet published this long-term forecast.

At the request of the Handelsblatt, the ECB announced that Lane had “nowhere said that the euro area would reach two percent inflation shortly after the end of the ECB’s forecast period”. “The FT’s conclusion that there could be an interest rate hike as early as 2023 is inconsistent with our forward guidance.” Forward guidance means the ECB’s predictive forecasts.

It continues: “At a public event on Wednesday, Lane made it clear that the ECB can achieve its two percent target with a permanently high monetary stimulus. He did not mention a specific date. “

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Nevertheless, the rumored private conversation between its chief economist and economists is putting the ECB under pressure to reconsider the practice of meeting representatives from the financial sector. The Green MEP Sven Giegold told the Reuters news agency on Friday that, for the sake of transparency, he would ask ECB chief Christine Lagarde in writing to prohibit exclusive meetings of this kind in the future.

The ECB has to change its communication strategy, which is evident in this case study: “You don’t know whether to believe the newspaper or public communications from the ECB.” The ECB left the Greens’ statements uncommented.

The ECB updated its inflation forecast last week. The economists are predicting an inflation rate of 2.2 percent for this year. For 2022, the economists raised their inflation forecast from 1.5 to 1.7 percent, for 2023 from 1.4 to 1.5 percent.

ECB Chief Economist Philip Lane

According to FT, Lane is said to have spoken out in a private conversation with German economists.

(Photo: Bloomberg)

The adjustment was apparently also the result of the inflation rate rising faster than expected. It had soared to 3.0 percent in August, the highest value in around ten years. Such a value was expected, but not until November.

However, the ECB and most economists continue to regard the price increase this year as a temporary phenomenon. It is mainly due to special effects due to the pandemic, the argument goes. These include delivery bottlenecks, catch-up effects in consumption and so-called base effects. The latter is about the fact that certain goods and commodities, such as the price of oil, fell sharply in the past year and are now correspondingly higher compared to the low values ​​of the previous year.

The ECB recently set a new medium-term inflation target of two percent. So far it had been just under two percent. With the new target, it was also necessary to adjust the interest rate outlook. The monetary authorities now want to keep their key interest rates at the current level or an even lower level until it can be seen that inflation has reached two percent and then remains that way for the time being.

More: Is the most powerful man in the international capital markets correct in his assessment of inflation? This question can also decide about his future.