November 9, 2021

The Issue Of Inflation Becomes A Hot Debate, Philip Lane's Stance Makes The Market Worry!

 The head of the European Central Bank, Philip Lane, today slammed the views of some economists who view monetary tightening as a productive move to ease the current inflation surge in the European Zone.

Essentially, the majority is of the view that the annual inflation rate in excess of 4% per month is double the ECB’s inflation target inflation pushes the ECB to abandon their simple monetary policy. At the same time plans to raise interest rates next year.

However, Lane is of the view that inflation is still driven by temporary factors and ECB policies are not effective in addressing the current rapid price growth and are unlikely to be effective in the future.

"The current abrupt tightening of monetary policy will not bring down high inflation at least in time. In fact, it will slow down the economy and reduce the workforce in the next few years." he said in a recent speech.

Thus, he views that inflation will read below 2% in the medium term is difficult to achieve and unproductive to tighten monetary policy for now.

ECB President Christine Lagarde and several members of the Governing Council all rejected market expectations last week, arguing that the conditions for a rate hike as outlined by the bank’s guidelines were “unlikely” to be met next year.

Currently the variable is employee wages to assess inflation resilience.