ECB’s Lane: Energy prices can have twofold impact on inflation
European Central Bank Executive Board Member Philip Lane said on Monday that an energy price shock can “simultaneously raise headline inflation but exert downward pressure on the path of underlying inflation.” Conversely, he said that “a one-off shift in the level of wages as part of the adjustment to a transitory unexpected increase in the price level” does not necessarily imply a shift in the trend of underlying inflation.
Lane also stressed calibrating the volume of asset purchases “plays an important role in ensuring that the monetary stance is sufficiently accommodative” in the bank’s efforts to reach the medium-term 2% inflation goal. “If the economy is close to the effective lower bound, it is vitally important to adopt especially forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched. In turn, this may also imply a transitory period in which inflation is moderately above target,” he said, quoting ECB research.
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