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ECB policymakers acknowledge growing inflation risk
Reuters reports that European Central Bank policymakers still see the recent inflation surge as temporary but a growing number appear to be acknowledging the risk that price growth may exceed their relatively benign projections.
Inflation hit 3% last month, well above the ECB's 2% target and could even climb to 3.5% by November, but the bank then sees a rapid drop that will drag price growth back below 2% for years to come.
ECB Vice President Luis de Guindos stuck with the ECB's main scenario but highlighted upside risks and warned that the bank needs to be "very vigilant" of the risk that temporary price rises could become permanent.
"Some countries in Europe have indexation of pensions and the salaries of public officials to inflation. That should be avoided because if you have a clear indexation of the economy to the evolution of a temporary shock ... then you can convert this temporary upward evolution of inflation to something that is much more permanent. And that is something that we should avoid, " de Guindos said.
He also warned that commodity prices and production bottlenecks risk creating "second round" effects in inflation.
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