Isabel Schnabel: Interview with Frankfurter Allgemeine Zeitung
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Monday, January 16, 2023
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That is why we are doing whatever is necessary to bring inflation back to our medium-term target of 2%.
Key Points:
- That is why we are doing whatever is necessary to bring inflation back to our medium-term target of 2%.
- In a speech that I gave in July 2021, I presented a series of indicators pointing towards a rise in inflation.
- For a long time, we believed that many of the causes of inflation would vanish over time.
- After the economy reopened, demand rapidly took off and met a relatively inelastic supply, exacerbated by supply chain disruptions.
- *
Indeed, but many people underestimated the extent of it; they thought that the supply chain disruptions would be resolved more quickly. - It was especially concerning that these price increases gradually broadened across the entire basket of goods.
- Not only energy prices rose steeply, but also core inflation, that is inflation stripped of the volatile prices for energy and food.
- By that time, it was clear to everyone that inflation would be more persistent.
- You have an academic background, you were a professor on the German Council of Economic Experts.
- Unlike in the United States, however, the disruptions in the euro area were predominantly on the supply side.
- That makes it harder for monetary policy, as it cannot directly remove the causes for the price increase.
- But we are now seeing a whole series of such shocks, which raises the risk of second-round effects.
- At the same time, the robust labour market, fiscal policy and the savings accumulated during the pandemic are supporting demand.
- There was a concern that premature action by monetary policy might unnecessarily push the economy into another recession.
- That is why we are applying flexibility in reinvesting redemptions coming due in the pandemic emergency purchase programme (PEPP).
- *Since October the ECB has been taking climate criteria into account when reinvesting funds from its corporate bond purchases.
- In order to counteract this, we now take into account climate criteria when reinvesting funds from maturing bonds.