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dpa
Frankfurt
The European Central Bank (ECB) should not react hastily to the significant inflation rise that washed over the eurozone in recent weeks, according to a member of the bank’s executive board.
A premature tightening of monetary policy threatens to damage the euro area economy and add burden on demand, Fabio Panetta said on Wednesday. Even permanently elevated inflation might require loosening up monetary policy, he said said.
Panetta based his assessment with the distinction between “good” and “bad” inflation. At the moment, the euro area is confronted with “bad” inflation, which occurs when negative supply shocks raise prices and depress economic activity.
In contrast, “good” inflation comes about when demand is robust, and employment is high.
“The data suggest that the current picture is dominated by “bad” inflation generated outside the euro area, while we are far from seeing unusually high domestic demand,” Panetta said.
Monetary policy should therefore exercise patience. A premature tightening of it could turn the supply shock into a prolonged recession, “thereby depressing demand and undermining price stability in the medium term,” Panetta said.
“This is a key reason for the flexible medium-term horizon of the ECB’s monetary policy strategy,” he added.
Panetta is considered an advocate of loose monetary policy and his comments do not quite fit in with recent remarks by other ECB representatives.
Most recently, ECB vice president Luis de Guindos and German ECB member Isabel Schnabel, among others, had expressed more scepticism about high inflation in the euro area.
So far, the ECB has explained high inflation mainly due to coronavirus effects, most of which should expire in 2022, it says.
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25/11/2021
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