Christine Lagarde (R), President of the European Central Bank (ECB), and Vicepresident Luis de Guindos (L)
Thomas Lohnes | Getty Images News | Getty Images
Chairman Jerome Powell surprised market players earlier this week when tweaking his tone about inflation. Now, economists in Europe say the needs to do the same.
told U.S. lawmakers that “it’s probably a good time to and try to explain more clearly what we mean” when talking about inflation.
Rising consumer prices have been a matter of growing concern for financial markets. Inflation has reached levels above central banks’ targets and money managers are skeptical about whether easy monetary policy is the right approach. This is no exception in the euro area.
“Transitory suggests we don’t need to worry about it. But we don’t know whether we should be worried about it,” George Buckley, chief U.K. and euro area economist at Nomura, told CNBC Wednesday.
He suggested that it remains unclear whether higher inflation in the euro zone will leave a more permanent mark on the economy.
Data released Tuesday showedin the 19-member bloc at 4.9% in November. The ECB’s policy is to work towards inflation of 2% over the medium term.
So far, the central bank has said it expects inflation to come down throughout 2022 — which suggests that a relatively loose monetary policy is still needed. But, there are growing questions about whether this period of high inflation will last longer than the ECB anticipated.
The ECB forecast in September that inflation would reach 2.2% at the end of the year; 1.7% in 2022 and 1.5% in 2023. These estimates will soon be revised.
Higher energy prices, ongoing supply chain issues and, more recently, the emergence of a new Covid-19 variant could push up inflation expectations.
Nomura’s Buckley said that the longer high inflation persists, the more markets will feel that central banks need to do something about it. That’s because higher inflation increases pressure for a tighter monetary policy.
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