The European Central Bank has recently tried to contain the rapidly rising inflation by sharply raising the key rate – but inflation is still quite high. Fundamental problems that are not directly factored into inflation play a key role here – they are much more persistent, according to ECB director Isabel Schnabel.
The continued strong price increase is still driving the monetary authorities. Economist Schnabel is targeting the so-called core rate, which excludes volatile energy and food prices, she said Wednesday at a conference of the National Association for Business Economics (NABE) in Washington.
“And that, of course, also causes headaches for central bankers,” she noted. Schnabel is part of the six-member management team of the European Central Bank (ECB) and is responsible for the concrete implementation of monetary policy.
Lines of concern among currency watchdogs
Headline inflation in the euro area recently fell further from 8.6 percent in January to 8.5 percent in February – in Austria the value was even around 11 percent. But the core interest rate rose from 5.3 percent in January to 5.6 percent in February. This worries many monetary authorities. Because that could indicate that the phase of high inflation rates in the 20-country community could last longer than previously thought.
Expensive energy works on many levels
According to Schnabel, one of the reasons for the continued high core inflation has to do with energy prices. For example, more expensive energy affects the entire economy and that is also included in the core inflation, she explains. According to Schnabel, the sharp increase in energy prices last year had a very rapid impact on the entire economy. However, this effect is not likely to be released again any time soon. “This is one of the factors that explains why core inflation is more resilient,” she said.
The ECB aims for an inflation rate of 2% as the optimum value for the economy in the euro area. She is still far from that. Economists currently expect headline inflation to fall further to 7.1 percent in March. Core inflation, on the other hand, is expected to rise again to 5.7 percent.
“Don’t Want Unnecessary Pain”
According to Schnabel, the ECB has some leeway to meet its inflation target. “I would say we have a little bit of flexibility in our case,” said the ECB director. “Our goal is defined as a medium-term goal, so of course we don’t want to cause unnecessary pain.” At the same time, she pointed out that higher inflation comes at a cost. Some feel it more than others – especially the less affluent.
The ECB had recently raised the policy rate again by 0.5 percent – and therefore again quite sharply – to keep it in check. It is the sixth interest rate increase in a row, which is also reflected in much more expensive loans. However, there is also a fear of an extension of the current banking crisis in the US and Switzerland – sharply rising interest rates could therefore put additional pressure on the banks.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
