ECB's Schnabel: Risks to inflation outlook are tilted to upside

Citing upside risks to inflation outlook, "we need to remain highly data-dependent and err on the side of doing too much rather than too little," European Central Bank (ECB) Governing Council member Isabelle Schnabel said on Monday, as reported by Reuters.

Key takeaways

"The path towards sustained price stability remains uncertain and fraught with risks."

"Profit margins expected to absorb rising labour costs."

"Rules suggest that the optimal interest rate path would have been steeper."

"The fact that we underestimated inflation persistence last year raises the probability that we are also underestimating inflation today."

"Giving more weight to observable data, in particular at times of high uncertainty, can improve the quality of policy decisions."

"Risks of both a de-anchoring of inflation expectations and weaker monetary policy transmission suggest that there is a limit to how long inflation can stay above 2%."

"We thus need to keep raising interest rates until we see convincing evidence that developments in underlying inflation are consistent with a return of headline inflation to our 2%."

Market reaction

These comments failed to provide a boost to the Euro. As of writing, EUR/USD was down 0.2% on the day at 1.0920.