E.C.B. Meeting to Consider Rising Inflation in the Eurozone

The decisions will be the first test of the central bank’s updated forward guidance. In July, policymakers said they were willing to overlook short-term jumps in inflation and would raise interest rates only once it was clear the annual inflation rate would reach 2 percent “well ahead” of the end of the central bank’s projection horizon and stay around that level over the medium term.

New projections for inflation and economic growth will be published on Thursday. The previous forecasts, in June, predicted inflation would peak at 2.6 percent in the fourth quarter and decline to 1.5 percent in 2022 and 1.4 percent in 2023.

But inflation has already risen to 3 percent in August, the highest in nearly 10 years, the region’s statistics agency said last week. So far, policymakers have been betting that the jump in inflation will be temporary, like other central banks around the world.

In recent years preceding the pandemic, the inflation rate was below the bank’s 2 percent target.

“The stars are much better aligned than they have been for a long time for the return of inflation back to 2 percent,” Klaas Knot, the governor of the Dutch central bank and a member of the governing council at the European Central Bank, said last week.

He said markets could expect a policy decision that would see the pandemic bond-buying program end in March, which “would imply a reduction in the purchase pace.” Jens Weidmann, the head of the German central bank, said that policymakers shouldn’t ignore the risk of “excessively high inflation” and that they should not “commit to our very loose monetary policy stance for too long.”

Article source: https://www.nytimes.com/2021/09/09/business/economy/european-central-bank-meeting.html