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Business & Finance

ECB's Schnabel says euro zone can escape low-inflation era

  • The ECB has missed its goal of keeping price growth "below but close to 2%" for a decade despite massive money printing, negative rates on deposits and subsidised loans to banks.
Published July 3, 2021

FRANKFURT: Euro zone inflation could come closer to the European Central Bank's goal of just under 2% "in the medium term" as the coronavirus pandemic is tamed and public spending fuels brisk economic growth, ECB board member Isabel Schnabel said on Saturday.

The ECB has missed its goal of keeping price growth "below but close to 2%" for a decade despite massive money printing, negative rates on deposits and subsidised loans to banks.

Schnabel said this might change after the pandemic if there is a combination of higher input prices, rising salaries and strong demand - fuelled by government spending and pandemic-time saving being released.

"With the share of vaccinated people approaching a critical mass, underpinning the economic recovery, there are chances for inflation to move closer to our aim in the medium term," she told a conference in Germany.

But she cautioned this couldn't happen without some help.

"For this to happen, continued fiscal and monetary policy support is needed to nurture and cultivate the nascent recovery and to set in motion a virtuous circle of rising underlying inflation and wages," she said.

Policymakers have started debating whether the time has come to dial back the ECB's latest bond-buying scheme, rolled out when the outbreak started in the spring of 2020.

Schnabel did not mention the Pandemic Emergency Purchase Programme but struck a cautious tone, saying the risk of a new wave of infections was high until herd immunity is reached.

ECB projections put annual price growth at 2.6% in the last quarter of this year from 1.9% last month. It is then seen falling back to 1.5% in 2022 and 1.4% in 2023.

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