Inflation and monetary policy at the European Union
Fabio Panetta, member of the Executive Board of the European Central Bank (ECB), describes the tough balance of the monetary response to deal with the uncertainty about inflation and economic growth outlook, exacerbated by the Ukraine’s conflict. If the ECB reacts to a rise in inflation that might not be lasting, it could suffocate the recovery, if it is too timid it could fail to ensure price stability, which would also have a negative impact on economic growth.
Key messages of the speech:
- The good: driven by domestic demand and wages consistent with ECB´s target, which monetary policy should seek to nurture until that target is reached
- The bad: reflects negative supply shocks that raise prices and depress economic activity, which monetary policy should look through
- The ugly: the worst type of inflation – is driven by a de-anchoring of inflation expectations, which monetary policy should immediately stamp out and combat.