ECB Deputy: Euro Inflation ‘Not as Temporary As We Expected’

FRANKFURT AM MAIN, GERMANY - JANUARY 23: Christine Lagarde, President of the European Cent
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The vice-president of the European Central Bank has said that the inflation currently facing the Euro is not ‘as temporary’ as officials initially expected.

European Central Bank (ECB) Vice-President Luis de Guindos has admitted that inflation currently facing the euro will be longer lasting than what the bank initially expected.

The admission comes as the Eurozone faces the highest level of inflation since the currency was introduced, hitting nearly 5% across the bloc in November.

While senior members within the ECB had been previously playing down the level and longevity of the Euro’s inflation, according to a report by Der Spiegel, Vice-President de Guindos finally struck a different tone on Monday.

“Our inflation is more persistent and not as temporary as we expected,” the vice-president said during an interview with Spanish radio station COPE. “It has to do with delay factors in the logistics sector, bottlenecks in the supply of intermediate goods.”

De Guindos also warned of potential economic fallout after the pandemic for nations in precarious fiscal positions.

“I believe that we must bear in mind that sooner or later, the pandemic will be overcome and the countries in a more vulnerable situation in fiscal policy, with more deficits and public debt, will have to carry out an adjustment program,” he said. “It will have to be done sooner or later.”

The vice-president’s comments mark a U-turn in the ECB’s public attitude towards the issue of inflation.

At the start of the month, ECB President Christine Lagarde dismissed the issue as transitory, according to a report by the Financial Times.

“I see an inflation profile that looks like a hump . . . and a hump eventually declines,” she said, emphasising that it was very unlikely that the ECB would raise interest rates next year as an attempt to curb the phenomenon.

The sudden shift away from playing down inflation mirrors a similar U-turn made by the Federal Reserve in the United States.

While the Eurozone is currently dealing with record levels of inflation for the bloc, the U.S. is currently facing even higher levels, hitting an annual rate of 6.8 per cent in November.

This has had a knock-on effect on American consumers, with the likes of gasoline prices rising over 50 per cent since the start of the year.

Despite previously playing down the effect of inflation in the country, the Federal Reserve announced late last month that it would wind-down some of its easy-money policies in an attempt to curb the phenomenon.

“The economy is very strong and inflationary pressures are high,” Federal Reserve Chairman Jerome Powell said. “It is therefore appropriate, in my view, to consider wrapping up the taper of our asset purchases … perhaps a few months sooner.”


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