ECB’s Rehn Says Price Pressures Have Stabilized Below Goal

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Underlying price pressures in the euro area have stabilized at a low level that isn’t in line with the European Central Bank’s goal, according to Governing Council member Olli Rehn.

While the institution’s pandemic stimulus has prevented strong deflationary trends from emerging, “the inflation outlook is a concern,” he said in awebinar on Saturday. He added that core inflation — which measures price growth excluding more volatile food and energy prices — has been relatively stable despite drastic swings in the real economy.

“Unfortunately, the stability has materialized at a very low level, i.e. clearly below our target,” he said.

His comments suggest the ECB may need to do more to support the region’s economy once the full impact of the pandemic becomes clear and if the inflation outlook doesn’t improve. After the ECB’s latest policy update on Thursday, President Christine Lagarde struck a mild but cautious tone saying that incoming information, including developments in the exchange rate, will need to be monitored.

Rehn echoed this sentiment. The euro’s more than 10% jump since March is a key factor dampening the inflation outlook, ECB chief economist Philip Lanesaid a day after Lagarde’s remarks, leaving “no room for complacency.” Various policy makers have attempted since then to strike a balance between voicing concerns about the euro’s surge and avoiding any impression that they’re deliberately trying to weaken the currency.

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Speaking at a gathering of EU finance ministers in Berlin on Saturday, ECB Vice President Luis de Guindos reiterated the exchange rate “is one of the most important variables” in terms of macroeconomic performance and said his institution is closely monitoring how it affects price stability.

— With assistance by Birgit Jennen

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