Data is a real-time snapshot *Data is delayed at least 15 minutes. Deflation threat mounts in eurozone as central bank readies more stimulus Read full article: ECB urged to raise inflation target...→ 2020-11-11 - / - express.co.uk; 5 days ago; Fuel duty increase proposals attacked as ‘draconian’ - Rishi Sunak urged not to raise tax . "Euro area real GDP (gross domestic product) is only expected to recover to pre-crisis levels in late 2022," Lagarde said on Monday. However, the ECB is currently more worried about sluggish price increases. FRANKFURT (Reuters) - The European Central Bank should consider taking longer to raise inflation to target as ultra-easy policy is constrained, faces unintended side-effects and as the bank struggles to maintain public trust, ECB board member Isabel Schnabel said on Tuesday. Even before the virus, inflation in the 19-nation eurozone has stayed stubbornly low, leaving the two-percent target well out of reach and fuelling calls for a rethink at the ECB… Very low inflation is also a cause of concern among European officials. During that period inflation varied substantially from year to year and was on average almost in double figures. Why hasn't platinum price rallied despite a major deficit? "However, inflation that is persistently too low can pose serious risks to the economy," he added. This advantage is reflected in Germany’s and northern Europe’s massive current account surplus, including with the euro area. Speaking to European lawmakers on Monday, Lagarde warned that upcoming data could point to further deflation — when the inflation rate enters negative territory, meaning that prices are falling rather than increasing. “The ECB should explicitly state that it will allow inflation to temporarily exceed the 2% target following extended periods of low inflation.” Thirty-six panellists responded to this question. Fed Chair Powell says more fiscal support is needed—Four experts are doubtful it can happen. Sign up for free newsletters and get more CNBC delivered to your inbox. Since 2008, inflation has only averaged 1.2% until the end of 2019, according to ECB data. Cutting the ECB inflation target would be deleterious for other reasons. Breaking News . "Many find it counterintuitive that the Fed would want to push up inflation," Fed Chairman Jerome Powell said at the time. Despite a rebound in activity in the third quarter, there are doubts about how the euro zone will perform in the final quarter of the year as many countries have announced further restrictions to contain the virus. A lower natural rate of interest requires the European Central Bank to modify its inflation target, and possibly to adopt average inflation targeting instead, economists say. ECB policymakers are debating how to redefine their inflation target as part of a broad strategy review. While some central banks have an inflation target range with a lower bound of 1%, the ECB has the lowest inflation target on average. The ECB's strategy review is studying how to adapt its policy to the current economic reality. Presumably such comments are meant to reassure the handful of people still … The Federal Reserve has previously expressed similar concerns and has updated its policy. An average inflation target would allow the ECB to leave policy at ultra-loose levels even if price rises overshoot. One way policy makers believe they can raise expectations is to make clear that the ECB will allow faster inflation in the future. The ECB's strategy review will last until mid 2021 but some policymakers in private say that the inflation target component could be finalised sooner, perhaps even in January, and the later part of the review would focus on secondary objectives. The ECB Governing Council is not free to target any rate of inflation because the Treaties make price stability the ECB’s primary objective. The lack of precision was deliberate. The Federal Reserve in the United States has undertaken a similar assessment and announced in late August that it would be allowing inflation to run above its target of 2% for "some time." The ECB targets inflation at just below 2% over the medium term, an undefined concept that has changed over time and is now understood to mean longer than the ECB’s two-year forecast horizon. The ECB's strategy review will last until mid 2021 but some policymakers in private say that the inflation target component could be finalised sooner, perhaps even in January, and the later part of the review would focus on secondary objectives. The ECB has not hit its target of “close to 2pc” for two years and the setting is a key area of debate as President Christine Lagarde presses on with a strategic review of the Bank’s mandate. In August, the US Federal Reserve announced the adoption of AIT, by which it would allow inflation to overshoot the 2% target in a bid to offset periods below it. "If credible, such a strategy can strengthen the capacity of monetary policy to stabilize the economy when faced with the lower bound," Lagarde said. Moreover, the ECB’s non-symmetric target is something of an anomaly amongst developed countries, which have overwhelmingly symmetric targets. The ECB currently has an inflation target of "close to, but below" 2 percent, a goal agreed in 2003 when rapid price increases were a real concern. Additional takeaways “The ECB already has a dual mandate, needs also to aim for full employment, balanced growth, sustainable development.” Price growth has undershot the bank’s target for nearly eight years and will continue to do so for years to come, despite unprecedented stimulus. A lower natural rate of interest requires the European Central Bank to modify its inflation target, and possibly to adopt average inflation targeting instead, economists say. Perhaps more worrying for policymakers, a narrower core measure, which excludes food and energy costs, remained steady at 0.4%, well below the ECB’s target of … The European Central Bank should be open to making its own "below but close to 2%" inflation target genuinely symmetric, ECB policymaker Olli Rehn said on Tuesday, as reported by Reuters. Inflation targeting would constrain the ECB’s policy choices in potentially catastrophic ways — for example, if inflation were to rise, yet the economy remains weak. The assumption is that the best that monetary policy can do to support long-term growth of the economy is to maintain price stability, and price stability is achieved by controlling inflation. Price growth has undershot the bank's target for nearly eight years and will continue to … Inflation below, but close to, 2% is said to be “low enough for the economy to fully reap the benefits of price stability” . Perhaps more worrying for policymakers, a narrower core measure, which excludes food and energy costs, remained steady at 0.4%, well below the ECB’s target of … Euro zone inflation remained in negative territory for the fourth straight month in November, reinforcing European Central Bank concerns that the dip in prices may be more persistent than feared as deflationary forces intensify amid a deep recession. This means that the central bank will be less likely to increase interest rates — a move that has wide implications for financial markets and the every day consumer. A recollection of the precedents helps put this in context. The ECB’s main target is low inflation and price stability – unlike the Bank of England and Federal Reserve “The primary objective of the ECB’s monetary policy is to maintain price stability. Which target is more important inflation or economic growth? Germany’s relative cost competitiveness is substantially stronger than other euro area countries, especially key peripheral members. The ECB, which now targets inflation at “below but close to 2%” is expected in the future to aim for 2%, with an explicit commitment to symmetry, suggesting that it will fight both overshooting and undershooting with the same vigour. Is it a credible commitment? Headline inflation in the Euro area. In a healthy economy, prices tend to rise at a gradual pace, not fall. (Reporting by Anne Kauranen; Writing by Balazs Koranyi; Editing by Francesco Canepa) For several years now, inflation has remained below the central bank’s target of “close to but below 2%”. The European Central Bank should consider adopting average inflation targeting (AIT), Bank of Finland governor Olli Rehn said in an interview with Central Banking. A Division of NBCUniversal. The European Central Bank's chief economist Philip Lane stated that rising labor costs will eventually affect the Eurozone inflation levels moving it closer to the bank's 2 percent target. Price growth has undershot the bank's target for nearly eight years and will continue to … More. The flash inflation reading for August had already come in at -0.2%, from 0.4% in July. ‘Plus ça change’: the more things change, the more they stay the same. The ECB has bought trillions of euros worth of debt over the past five years, cut rates deep into negative territory and subsidized banks by paying them to borrow, all in the hope of spurring growth. The Governing Council has defined price stability as HICP increases of less than 2% y-o-y over the medium term. Central banks use interest rates to steer price increases toward a publicly announced goal Sarwat Jahan. In 1998, its inaugural year, the newly established ECB announced a strategy to explain how it would attain its price stability mandate. Platinum price was 'suppressed' in 2020 by futures markets - World Platinum Investment Council, Why Friday was the end of an era in mining, The Metals, Money, and Markets Weekly by Mickey Fulp - December 4, 2020, Gold still bullish within macro bearish correction 12/4/20, CPM Group - politics and gold, the lessons of 1933 - Jeffrey Christian. Global Business and Financial News, Stock Quotes, and Market Data and Analysis. The ECB aims at inflation rates of below, but close to, 2% over the medium term. “A more elastic use of the ‘medium term’ notion might be all the more conducive in an environment in which (there is) a high degree of prevailing uncertainty,” Schnabel added. "The strength of the recovery remains, however, highly dependent on the evolution of the Covid-19 pandemic and the success of containment policies," she added. The inflation target thus acts as the economy's "nominal anchor". The ECB is in the process of reviewing its monetary policy strategy. ECB should weigh copying Fed's new inflation target: Rehn. Since 2003, the central bank has targeted an inflation rate "below, but close to 2%" in an attempt to address concerns over significant consumer price rises. When the ECB carried out its previous policy review in 2003 “one of the key assumptions was that the natural rate of interest hovered around 2%, and that’s not the case anymore. The ECB targets inflation at just below 2% over the medium term, an undefined concept that has changed over time and is now understood to mean longer than … The ECB's strategy review is studying how to adapt its policy to the current economic reality. The European Central Bank should be open to making its own "below but close to 2%" inflation target genuinely symmetric, ECB policymaker Olli Rehn said on Tuesday, as reported by Reuters. … All Rights Reserved. Reporting by Balazs Koranyi; Editing by Francesco Canepa and Catherine Evans, Analytical Charts - Jim The primary objective of the ECB – price stability – is clearly established in the Treaty on the Functioning of the European Union. To reassure the public, the Fed and ECB have announced that they intend to keep interest rates low for a few years. The ECB’s Governing Council adopted a quantitative definition of price stability in 1998: "Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%." When the ECB carried out its previous policy review in 2003 “one of the key assumptions was that the natural rate of interest hovered around 2%, and that’s not the case anymore. The European Central Bank should be open to making its own “below but close to 2%” inflation target genuinely symmetric, ECB policymaker Olli Rehn said on Tuesday, as reported by Reuters. Inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public. Quotes. The European Central Bank will discuss possible tweaks to its inflation target at a seminar next week, Finnish central bank governor Olli Rehn said on Friday, reinforcing expectations that the target could be finalised before a strategy review ends in mid-2021.
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