Isabel Schnabel, one of the six members of the executive board of the European Central Bank (ECB), continues to believe that inflation will gradually decline towards the end of 2022, while stressing that “The uncertainty is exceptionally high”.
Between the very rapid economic rebound and the new pandemic wave, the situation is difficult to read. How do you see her?
The uncertainty is indeed very high, as it has been since the start of the Covid-19 pandemic. Overall, I think the recovery is continuing. But, due to the new wave of infections and the new variant, we are seeing headwinds in the short term. We now expect weaker economic activity in the fourth quarter and through early 2022. But we expect a stronger rebound thereafter. It is simply a time lag, a phenomenon often observed during the pandemic. Households in the euro area have accumulated significant savings, which are supporting the recovery. We do not believe that the recovery will derail, but that it will be delayed.
Inflation reaches 4.9% in the euro zone, 6% in Germany, more than 9% in some Baltic countries. Are you worried?
These high figures are linked to the specific situation due to the pandemic. As the economy reopened, there was a strong rebound in demand. The offer couldn’t respond quickly enough, in part because of health restrictions. This has resulted in numerous supply chain disruptions and rising commodity prices, especially energy prices. This phenomenon has been amplified by different statistical effects, because we compare the prices today to those of a year ago, in the midst of the pandemic, which had collapsed. This skews the picture a bit.
All of these factors are nonetheless likely to reverse, or at least ease, over the course of 2022. Take the bottlenecks: we don’t know precisely how fast, but it is clear that over time they will be resolved. Likewise, it is highly unlikely that energy prices will continue to increase at the same rate. And, finally, the base effects will go away. We know that inflation is going to be high for a while, but also that it will decline over the course of 2022. What we know less precisely is how quickly and to what extent this slowdown will occur.
We have heard this explanation of temporary inflation since the summer. And yet, month after month, it surprises on the rise …
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