The Governing Council of the European Central Bank (ECB) discussed in December that inflation could persist at a high level when it reduces asset purchases in 2022, according to the minutes of their meeting published Thursday.
Some members felt that an inflation scenario higher for longer could not be ruled out, the document stresses, contrasting with the institution’s narrative that the current rise should be temporary.
The year 2021 ended in the euro zone with a rate of increase in consumer prices of 5%, driven by energy prices and shortages.
For 2023 and 2024, the ECB expects a return to normal with inflation relatively close to 2%, its medium-term objective. But the aggregate could easily turn out to be more than 2%.
Certain factors, such as the fight against climate change or the digital shift of economies, accelerated by the health crisis, could change the ways of forecasting inflation, according to the report.
Models calibrated on pre-pandemic data might not be well suited to capture major structural changes or a potential shift from a lower to a higher inflation regime, he said.
This is why it was decided in December to pay particular attention to timely signals emanating from the real economy, in particular those from companies and decision-makers, rather than relying mainly on past patterns and models.
Moreover, the longer inflation remains above the target, the more wages could experience high growth, fueling inflation again, the document points out.
Although vigilant to the risk of inflation, the ECB took only a small step towards monetary tightening in December, unlike the American Fed which could raise its rates as of March 2022, with three or four hikes overall of the year.
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In Frankfurt, concerns were expressed over any premature reduction in monetary support, the report said.
At the ECB Council, the doves in favor of ample support from the economy still dominate the clan of hawks, followers of a more restrictive contest.
The board was divided on the terms of the monetary tightening in December.
Some have expressed reservations, particularly on the recalibration of purchases of public and private assets, which will drop from around 80 billion euros to 20 billion monthly by October, while key rates will remain at their historic lows.