ECB's Kazimir: Will not hesitate to act if inflation was at risk of staying above target

Will not hesitate to act if inflation was at risk of staying above target for a prolonged periodWe can do little about the inflation spike in the next few monthsSupply chains beyond energy are at riskEvery future meeting is open and liveWe are yet to leave our “good place”Clear upside risks for inflation and downside risks for growthThe ECB is carefully monitoring the economic impact from the US-Iran war and the elevated energy prices. Peter Kažimír, a member of the Governing Council and head of Slovakia’s central bank, said that while the Eurozone is currently in a “good place,” the central bank will not hesitate to act if inflation is at risk of staying above the 2% target for a prolonged period. This hawkish tone reflects the new environment where upside risks once again dominate the outlook.The immediate concern for policymakers is the volatility in energy markets. Kažimír acknowledged that the ECB can do little about the inevitable inflation spike expected in the next few months as these energy costs filter through the system. There is growing concern that supply chains beyond energy are at risk, creating a broader inflationary pressure that could prove more difficult to combat if it becomes embedded in the pricing behavior of firms and the wage demands of workers.What makes this moment particularly delicate is the “memory effect” of the 2022 inflation shock. Kažimír warned that businesses and consumers may now have a much lower threshold for adjusting prices and wages, potentially leading to faster second-round effects than seen in previous years. Because of this high uncertainty, the ECB is moving away from long-term guidance and toward a stance where every future meeting is open and live. This approach ensures the Governing Council remains agile and ready to pivot toward further tightening.Kažimír’s comments serve as a reminder that the bank is prepared to prioritize price stability over economic growth if the two come into conflict.
This article was written by Giuseppe Dellamotta at investinglive.com.

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