Europe's monetary authorities: Inflation is temporary

Despite the recent sharp rise in inflation rates, Europe's monetary authorities see no reason for a quick end to their flood of cheap money. The euro area is "far from being in a situation in which we end asset purchases," said the chief economist of the European Central Bank (ECB), Philip R. Lane, in an interview with the Spanish daily "El País ". "This period of inflation is very unusual and transitory and not a sign of permanent existence - the situation we are in now is very different from what we were in the 1970s and 1980s," Lane said. He pointed out that the global upswing is faster than expected, which is why there may be bottlenecks because supply is not keeping pace. Lane stressed: "There should be no doubt that we are going to ensure that Europe has a strong recovery and that that recovery is not derailed by unnecessarily tightening funding costs." The Governing Council wants to decide on December 16 how to proceed with the billion dollar bond purchases. According to current planning, the PEPP (Pandemic Emergency Purchase Program) purchase program launched to cushion the corona shock should run until at least the end of March 2022. ECB President Christine Lagarde said after the most recent ECB meeting at the end of October that she expected the PEPP to end in March. However, the central bank wants to invest new money from expiring securities of the 1.85 trillion euro program afterwards. In addition, there is sympathy in the Governing Council for the idea of ​​transferring the flexibility of the emergency purchase program to other bond purchase programs. Critics accuse the ECB of using all the cheap money to fuel inflation, which it actually wants to keep in check. "Inflation is unexpectedly high right now, but we believe it will decrease over the next year," Lane said in the interview. "And if we look at the situation in the medium term, the inflation rate is still too low, it is below our target of two percent, but not too high." The ECB explains the rise in consumer prices for the most part with special factors such as the recovery in oil prices after the corona shock and delivery bottlenecks as a result of the significantly increased demand. In addition, the withdrawal of the temporary VAT cut in Europe's largest economy, Germany, is now having a full impact. There are strong reasons for inflation to decline next year, Lane affirmed. One must "have enough patience not to overreact to a temporary rise in inflation," said the ECB's chief economist.