ECB’s Schnabel: Risks To The Inflation Outlook Are Tilted To The Upside

ECB’s Schnabel: Risks To The Inflation Outlook Are Tilted To The Upside

FULL STORY

**THE PATH TOWARDS SUSTAINED PRICE STABILITY REMAINS UNCERTAIN AND FRAUGHT WITH RISKS

**PROFIT MARGINS EXPECTED TO ABSORB RISING LABOUR COSTS

**A MONETARY POLICY STANCE THAT ERRS ON THE SIDE OF DETERMINATION INSURES AGAINST COSTLY POLICY MISTAKES

**RULES SUGGEST THAT THE OPTIMAL INTEREST RATE PATH WOULD HAVE BEEN STEEPER

**THE FACT THAT WE UNDERESTIMATED INFLATION PERSISTENCE LAST YEAR RAISES THE PROBABILITY THAT WE ARE ALSO UNDERESTIMATING INFLATION TODAY

**GIVING MORE WEIGHT TO OBSERVABLE DATA, IN PARTICULAR AT TIMES OF HIGH UNCERTAINTY, CAN IMPROVE THE QUALITY OF POLICY DECISIONS

**THIS MEANS THAT WE NEED TO REMAIN HIGHLY DATA-DEPENDENT AND ERR ON THE SIDE OF DOING TOO MUCH RATHER THAN TOO LITTLE

**RISKS OF BOTH A DE-ANCHORING OF INFLATION EXPECTATIONS AND WEAKER MONETARY POLICY TRANSMISSION SUGGEST THAT THERE IS A LIMIT TO HOW LONG INFLATION CAN STAY ABOVE 2%

**WE THUS NEED TO KEEP RAISING INTEREST RATES UNTIL WE SEE CONVINCING EVIDENCE THAT DEVELOPMENTS IN UNDERLYING INFLATION ARE CONSISTENT WITH A RETURN OF HEADLINE INFLATION TO OUR 2%

**A MONETARY POLICY STANCE THAT ERRS ON THE SIDE OF DETERMINATION “INSURES” AGAINST COSTLY POLICY MISTAKES

This article was written by Ryan Paisey at www.forexlive.com. Source