Dhe Dutch central bank governor Klaas Knot warns against underestimating inflation risks. “Inflation is not dead,” said the Governing Council member of the newspaper “NRC Handelsblad” in an interview published on Sunday. “We should not overestimate our ability to determine what is and what is not temporary inflation,” said Knot.
The German ECB director Isabel Schnabel, on the other hand, does not consider the current inflation concerns to be justified, despite opportunities for stronger growth rates in the euro area after the pandemic. “Even in this environment, fears of excessive inflation are unfounded,” said the member of the six-person management team of the European Central Bank (ECB) on Saturday, according to a speech at an event. Even in the most favorable scenario, inflation over the next few years will very likely remain well below the levels that threatened price stability in the 1970s and 1980s.
The ECB is aiming for just under two percent inflation in the euro area, but has mostly missed this target in recent years. The central bank wants to talk about its inflation target next week. In June, inflation in the 19-country community was 1.9 percent, after 2.0 percent in May. Many economists anticipate that prices will continue to rise in the second half of the year.
According to their latest forecasts, the economists of the ECB expect an average inflation rate of 1.9 percent for the current year. From their point of view, the increase in the cost of living, which was recently mainly driven by energy prices, is not sustainable. For 2022, their projections again envisage lower inflation of 1.5 percent. In 2023, inflation is expected to be just 1.4 percent.
In her speech, Schnabel pointed out that the growing proportion of vaccinated people in the population supports the economic recovery. Therefore, there are chances that inflation in the euro area will move closer to the central bank’s medium-term target, she said. According to Schnabel, overcoming the pandemic provides grounds for cautious optimism for the first time in many years that the economy could leave the low growth and inflation rates of the past decade behind. But that requires continued fiscal and monetary support, she noted.
.