Lane Warns Weak Inflation Is Bad Idea in ECB Listening Session

Bloomberg

Published Oct 21, 2020 16:16

Updated Oct 21, 2020 18:36

(Bloomberg) -- European Central Bank chief economist Philip Lane kicked off the latest phase of the institution’s strategic overhaul by promising it will seek a sweet spot between too-high and too-weak price growth.

Lane said the ongoing review of the ECB’s inflation goal -- currently “below, but close to, 2%” -- will reflect the view that it’s “a bad idea to have inflation drifting upward, but it’s also a very bad idea for inflation to go negative.”

Euro-area inflation has dropped below zero for the first time in four years as the economy is slammed by the coronavirus pandemic. Most economists expect the ECB to add more monetary stimulus before the end of the year.

“We know the absence of price stability is damaging,” Lane said at a listening event for trade unions, environmental and social groups. “The sweet spot we think is low inflation, but with a significant enough buffer above zero that we do make sure we don’t fall into deflation.”

Lane and President Christine Lagarde kicked off an exercise dedicated to giving members of civil society the platform to engage with policy makers over the institution’s strategy.

It forms part of a wide-ranging review launched shortly after the beginning of Lagarde’s leadership, after years of weak price growth forced the institution to pump trillions of euros of stimulus into the euro-area economy.

“First of all we will listen, that’s number one,” Lagarde said in her opening comments. The ECB will collect “the comments, the views, the expectations, frustrations, the desires of those who will take the floor and will tell us how they see it and how they see our actions.”

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