Bloomberg / Frankfurt
European Central Bank officials took to the airwaves to reassure citizens facing a once-in-generation spike in inflation that the squeeze on living costs won’t last, while also expressing confidence that the Omicron variant isn’t too much of a worry.
From President Christine Lagarde appearing on an Italian chat show to German Executive Board member Isabel Schnabel doing a live interview in her home nation, policy makers sought to take control of the message in a week of alarming consumer-price data and renewed growth concerns.
Spanish inflation accelerated to a three-decade high of 5.6% in November, according to statistics released on Monday, while a German report hours later is expected to show a similar outcome.
Economists predict eurozone data on Tuesday to come in at 4.5%, which would be the fastest pace in the history of the single currency.
“I can very well understand that many people have worries,” Schnabel told Germany’s ZDF on Monday. “This has to do with an extraordinary economic situation” she said, citing unusual base effects, increases in energy costs and raw materials.
Adding to the ECB’s communication challenge is the sudden emergence of the omicron coronavirus strain. Just as officials try to reassure citizens that price surges are temporary, the possibility of new restrictions is another source of uncertainty they want to contain.
“There is a risk, but I think we’ve learned a lot, we know this enemy, we know the instruments we need to use and precautions we need to take, people have been vaccinated, there are new therapies,” Lagarde told Italy’s RAI 3 on Sunday night.
Meanwhile, “inflation we’ve seen is tied to temporary phenomenons, and for a country like Italy in particular is due to energy cost increases,” she said. Her colleague, Bank of France Governor Francois Villeroy de Galhau, had a similar message in comments to a conference, insisting that large price increases are temporary while also trying to be sanguine about the coronavirus.
“We must monitor closely the latest Covid developments,” he said, though omicron “shouldn’t presumably change the economic outlook too much.”
The ECB is reacting to reports of the new variant as well as alarming inflation headlines just as officials prepare for a major decision on the future of stimulus in mid-December.
Germany’s data on Monday may show inflation close to 6%, according to the Bundesbank. In an initial report from North Rhine-Westphalia, the country’s biggest state, it jumped to 5.1% using national methods of calculation. In Bavaria, the next-largest, and in the ECB’s home state of Hesse, it came in at 5.3%.
“We expect that November will prove to be the peak,” said Schnabel, predicting that eurozone inflation will fall back below 2%, the ECB’s target. As the only native German speaker on the six-member board, she has taken on the mantle of explaining policies to the public in her home nation after a period of voter alienation with the institution there.
Schnabel herself is currently the most openly hawkish member of the Executive Board. She told Bloomberg last week that inflation risks are now “skewed to the upside.”
In Spain, the 5.6% outcome was the fastest since 1992, and matched a result that used the European Union-harmonised measure too.
Bank of Spain Governor Pablo Hernandez de Cos, signalling how his assessment differs from Schnabel, said that’s no reason to rush to stop bond purchases. “Inflation will start to ease very significantly in the second quarter of 2022,” de Cos said at a banking forum in Madrid on Monday. “Monetary and fiscal policies have to avoid a premature removal of stimulus.”
The ECB’s decision in December will determine the parameters of bond-buying policies after the scheduled end of its pandemic emergency program in March.
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