Frankfurt According to ECB Director Isabel Schnabel, the European Central Bank (ECB) must also take into account the rise in real estate prices when assessing inflation. She said so in an interview with the Financial Times on Tuesday. The real estate boom increases the risk that monetary authorities will act too late in changing monetary policy, said the German economist.
As part of its strategy review, the ECB decided that in future it would like to take the costs of owner-occupied housing into account when determining price developments. So far, only the rental costs have been included in the calculation at European level. Since the inclusion is technically very complicated, it will take years before this is implemented.
According to calculations by the ECB, inflation (HICP) has been a maximum of 0.3 percentage points higher since 2011 if owner-occupied housing is taken into account. The difference would have been even greater in what is known as core inflation, which excludes food and energy prices that are particularly susceptible to fluctuations. In the third quarter of 2021, it would have been 0.6 percentage points higher.
“We can’t ignore this,” Schnabel said. This must be taken into account when considering the future monetary policy course of the ECB.
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In practice, however, some hurdles remain. For one thing, houses and apartments are also assets. People buy houses not only to live in them, but also to increase their value. However, only consumer prices and no asset prices are to be included in the consumer price index – it is difficult to distinguish between the two. In addition, up-to-date values are needed to estimate the costs of owner-occupied housing. So far, the data in the euro area has only been collected on a quarterly basis.
New inflation forecasts
The background to the debate about the influence of property prices is the very high inflation in the euro area, which rose to a record 5.1 percent in January. The ECB is aiming for an inflation rate of 2.0 percent in the medium term. In view of the high price pressure, it could decide to tighten monetary policy more quickly at its March meeting.
Whether the central bank will act depends to a large extent on the new inflation forecasts. In December, they had predicted a significant drop in inflation to 1.8 percent in 2023 and 2024. However, they will probably be higher in March.
Many experts therefore expect that the ECB will decide to end its bond purchases more quickly. This is considered a prerequisite for a possible rate hike this year.
More: Why housing costs should soon be included more in inflation