The European Central Bank should actively fight inflation until people feel price stability in their everyday lives, according to Governing Council member Robert Holzmann.
(Bloomberg) — The European Central Bank should actively fight inflation until people feel price stability in their everyday lives, according to Governing Council member Robert Holzmann.
“The risk of over-tightening seems dwarfed by the risk of doing too little,” Holzmann told a conference Monday in Budapest. “Monetary policy must continue to show its teeth until we see a credible convergence to our inflation target.”
The comments from the hawkish Austrian central bank chief come after the ECB raised interest rates by a second consecutive half-point step last week, and all but promised to repeat that move next month.
With euro-area economic growth almost grinding to a halt late last year, and inflation easing from all-time highs, some rate-setters had started to question whether a slower tightening pace was more appropriate. The Federal Reserve lifted borrowing costs by only a quarter-point last week, even as Chair Jerome Powell vowed to continue raising.
While euro-zone inflation has slowed more than expected on the back of falling energy costs, underlying price pressures remain, ECB President Christine Lagarde said last week.
Inflation will moderate to 6.3% this year and only reach the 2% target by the second half of 2025, according to the ECB’s most recent forecasts, published in December.
Holzmann said the ECB’s timely steps had helped keep inflation expectations near the goal, but people were still feeling the impact of too-rapid price growth in their everyday lives.
Weak monetary-policy action risks de-anchoring those expectations and would make later efforts to tame prices more time-consuming and costly, he said.
“Ultimately, the losses we as euro-area policymakers incur by consistently missing our inflation target come at our own peril,” Holzmann said.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.