News
ECB · Euro Area · Inflation · Monetary Policy
Fabio Panetta, Member of the Executive Board of the ECB, delivered a speech on November 24, 2021, in Paris, advocating for a patient monetary policy stance in the Euro area despite a temporary inflation spike, which he attributes primarily to external supply shocks and base effects.
Panetta categorizes current Euro area inflation as predominantly "bad" inflation, driven by global energy price surges, which contributed 2.2 percentage points to inflation in October, and supply bottlenecks. He states that 80% of headline inflation reflects foreign-generated shocks, according to Eurostat and ECB staff calculations.
The Euro area's recovery lags behind other major economies, with domestic demand not abnormally large and core inflation (on a two-year basis) much lower than in the United States, as shown by Eurostat and Federal Reserve System data. Panetta warns that premature tightening risks turning supply shocks into a demand shock, threatening recovery and leading to too-low medium-term inflation.
The ECB's focus remains on completing the recovery and achieving self-sustained 2% inflation in the medium term. He dismisses immediate risks of "ugly" inflation (de-anchored expectations, wage-price spiral) due to remaining labor market slack, citing half a million fewer jobs and 2.4 million workers still under job retention schemes.
