LISBON (Reuters) -European policymakers should avoid taking rushed pro-cyclical measures in response to high inflation, which is expected to slow down over time and converge with European Central Bank targets, ECB Governing Council member Mario Centeno said on Thursday.
Pro-cyclical policies tend to reinforce the existing conditions facing an economy be it economic growth or recession.
“We should be worried and act – as consumers and policymakers – about the inflation numbers we’ve seen. But we also have to remember the need to think longer-term in these processes…and we should be guided by patience.”
“Pro-cyclical policies are all we should avoid”, he said, adding there is a need for greater coordination of national policies, but also at the European level.
Governments usually increase spending and lower taxes during a recession, which many fear is looming now due to high inflation. But central banks are currently raising interest rates to combat high inflation, action that can magnify economic downturns.
With euro zone inflation at record levels, policymakers are concerned that even long-term inflation expectations may move above the ECB’s 2% target.
Still, Centeno said that “the forecast of all institutions, including the Bank of Portugal, is that inflation will decelerate and will gradually return – probably more gradually than we wanted – to levels consistent with the ECB’s objectives.”
Official data published on Wednesday showed that inflation in the 19 countries sharing the euro currency accelerated to 9.1% in August year-on-year from 8.9% a month earlier.
The ECB is expected to face a choice at its policy-setting meeting next week between a rate rise of around 50 and 75 basis points. The ECB raised rates by 50 basis points to zero percent in July.
Source: Economy - investing.com
