(Teleborsa) – “Today, against the backdrop of rising inflation rates, particularly in Germany, I would like to alleviate the concern that inflation may remain constantly too high or even rise uncontrollably. In all likelihood, inflation will drop significantly as early as next year“. This is what Isabel Schnabel – member of the Executive Committee of the European Central Bank (ECB) – declared in a meeting with German entrepreneurs.
Schnabel highlighted the need for “break the vicious circle limited room for price increases, slow growth and falling inflation expectations ”, with the aim of escaping negative interest rates. “There are growing signs that the current combination of fiscal and monetary policies can achieve this,” he added, referring to the instruments deployed by the European Union and the ECB during the pandemic.
In the course of his speech, he tried to reflect on how the pandemic may be a way out of the low interest rate environment, identifying three developments that require special attention. First, supply bottlenecks could increase price pressure over the long term; furthermore, a higher growth path is expected through far-reaching reforms and structural changes (such as the Next Generation EU); finally, the optimism of investors and citizens increases demand: the ECB’s inflation target can be reached earlier than expected as it is linked to people’s better expectations.
The German economist dwelt at length on the problems of global supply chains. “There are growing indications that current supply disruptions and shortages of raw materials could be prolonged – he explained – Producer prices continue to rise, the global shortage of microchips is causing more and more production interruptions and vaccination rates in many emerging economies remain at a level that endangers the resilience of global value chains ”.
“The longer supply chain problems persist, the greater the likelihood that businesses will pass their cost increases into consumer prices – he added – Indeed, we now see that an increasing number of businesses in the euro area are raising prices and further price increases are expected in the near future ”. Schnabel said the ECB is closely monitoring these risks, “also because during the pandemic – unlike in the pre-crisis period – we generally underestimated, rather than overestimated, the path of inflation“.