By Padraic Halpin
DUBLIN (Reuters) -Fears of excessive euro zone inflation are overstated “at the moment” but policymakers must recognise there is considerable uncertainty about the persistence of price pressures, European Central Bank governing council member Gabriel Makhlouf said.
Euro zone inflation has been rising more than expected recently and hit a 10-year high of 3.0% in August, data confirmed on Friday, challenging the ECB’s benign view on price growth and commitment to look past what it deems a temporary increase beyond its 2% target.
Makhlouf, Ireland’s central bank chief, said he expected the current pick-up in inflation to be transitory, and that there was a lot of evidence to back that up. However he said the central bank needed to be “vigilant to the risks”.
“I believe that, at the moment, fears of excessive euro area inflation are overstated and that the current price pressures reflect transitory factors that will fade out over time,” Makhlouf told an online conference.
“But there is considerable uncertainty about the persistence of price pressures and we need to interpret this (inflation) data and the outputs of our models with caution… Humility and vigilance are necessary so that we can react as necessary if conditions change.”
Makhlouf said that, in the meantime, it would be important the ECB maintains an accommodative monetary policy stance “for some time” to ensure the continued recovery from the COVID-19 pandemic remains solid.
Raising interest rates in response to a temporary rise in prices would be harmful to those efforts, he added.
The ECB, which took a first small step last week towards unwinding the emergency pandemic aid, also raised inflation expectations, which it now sees at 2.2% this year, falling to 1.7% next year and 1.5% in 2023.
Makhlouf said that with the correct monetary and fiscal policies in place, a sufficiently strong demand-driven recovery should see inflation return to 2% over the medium-term.
(Reporting by Padraic Halpin; Editing by Jon Boyle and Alex Richardson)
