High inflation looms over ECB meeting
FRANKFURT, Sept 6: Rising eurozone inflation will provide the backdrop for the meeting of European Central Bank governors Thursday, with markets hoping for hints of when policymakers might start easing their massive pandemic-era stimulus.
As the economic recovery gathered steam in the 19-nation club, consumer prices rose at a pace not seen in the past decade, reaching three percent in August -- well above the ECB's new two-percent target.
ECB president Christine Lagarde previously promised to "look through" the surge and policymakers expect the rate to rise even further in coming months before falling back.
"We are more worried about the inflation rate being too low in the medium term rather than too high," Isabel Schnabel, a member of the ECB's executive board, said last month.
The ECB considers the jump in consumer prices to be driven by one-off, pandemic-related effects as energy prices recover and policies aimed at mitigating the economic impact are rolled back.
As such, observers do not expect the ECB's governing council to adjust historically low interest rates or announce any significant change to their colossal bond-purchasing programme, despite some grumbling among its 25 members.
Jens Weidmann, the president of the German Bundesbank, urged the ECB in August not to ignore the risk of a higher inflation outlook, and said the ECB must stand ready to gradually scale back its bond-buying.
"Even if some ECB hawks re-emerged over the last days, we don't expect their pushback to be strong enough to deliver any changes to the ECB's monetary policy stance," ING bank economists Carsten Brzeski and Antoine Bouvet said.
The ECB launched its 1.85-trillion-euro ($2.2 trillion) pandemic emergency bond-buying programme (PEPP) last year to help the euro region weather the coronavirus crisis.
The huge asset purchases, scheduled to run until March 2022, are aimed at keeping borrowing costs low to keep credit flowing and boost economic growth.
The ECB will on Thursday also unveil the latest quarterly growth and inflation forecasts, but analysts expect few surprises.
The inflation outlook is predicted to stay roughly unchanged, at 1.5 percent in 2022 and 1.4 percent in 2023 -- well below the 2.0 percent target.
Lagarde's news conference on Thursday will be scoured for any signs of future changes in strategy as the eurozone bounces back from the coronavirus shock.
Future policy needs to be "almost surgical", she recently told Time magazine, adding it was "no longer a question of massive support, it's going to be a question of focused, targeted support in those sectors that have been badly hurt".
All eyes are on the ECB's next move after the Federal Reserve began openly discussing scaling back stimulus in the United States, where the economic recovery is seen as further along. In a speech to the annual Jackson Hole symposium in late August, Fed chair Jerome Powell said "it could be appropriate to start reducing the pace of asset purchases this year". But Natixis economist Dirk Schumacher said the ECB would want to "signal its independence" from its US peers. -AFP