Chief economist Philip Lane says focus needs to be ‘driven by upcoming risks rather than being backward-looking’
Philip Lane: monetary policy decisions at some point in the future need 'to be driven by upcoming risks rather than being backward-looking'. Photograph: Eric Piermont/AFPThe European Central Bank is set to scrap its focus on using the latest economic data to determine whether to cut interest rates, sounding the knell for one of the core strategies deployed by the euro zone’s rate-setters to bring under control the worst bout of inflation in a generation.
But their inability to spot that price rises in energy markets — sparked by supply chain snags and the impact of the war in Ukraine — would stick around left rate-setters struggling to maintain their credibility.Their encounter with the first bout of persistently high inflation for decades led central bankers in Frankfurt and elsewhere to focus less on their forecasts and more on monthly inflation and survey data, along with quarterly GDP figures.
After the podcast was recorded, Eurostat reported that annual services inflation came down to 3.9 per cent and was slightly softer than predicted. “At some point, we will make the transition from having been driven by very important disinflation challenge to the new challenge of keeping inflation 2 per cent on a sustainable basis.”
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