Klaas Knot, a Dutch policymaker, came forward to express his views on the issue of inflation. He basically thinks that european zone inflation is likely to ease to a level below 2% by the end of next year. But the European Central Bank must be prepared for risky scenarios to avoid unfavorable policy commitments.
Inflation has risen more than 4% in the past month. which is twice more than the target set by the ECB of 2%. On that basis, the ECB has rejected calls to tighten policy plus they are of the view that this rise in inflation is only temporary.
Knot who is a conservative member of the Governing Council warned that although price pressures are seen as temporary there are some factors that may last longer.
Knot’s comments come weeks before the ECB is expected to decide to roll out the 1.85 trillion euro ($ 2.14 trillion) stimulus scheme, the Pandemic Emergency Purchase Program and will likely consider other alternatives to address existing weaknesses.
Knot noted, in this important decision, the ECB should not bind for too long because more sustained inflation may require policy action sooner than is currently planned.
“We can’t make long -term unconditional commitments that may ultimately be incompatible with how the inflation outlook develops,” Knot said.
He added that the effects of past tax hikes and oil price hikes will indeed fade, but supply chain congestion and future energy price hikes may maintain inflationary pressures. Therefore, preparations must be made because these temporary price pressures are not necessarily short -term.
