Intermoney | ECB President Christine Lagarde acknowledged yesterday that the central bank would consider formulas to allow inflation to exceed 2%, without being forced to raise rates and suffocate the recovery. Reality, as Lagarde indeed acknowledged, is in keeping with a world in which inflation targets must be transformed. They were designed to avoid upward deviations, but not to deal with prolonged situations of inflation deficit.
On Thursday September 10, the ECB will meet and present its updated macroeconomic table, which will give us a better idea of its expectations regarding the pace of economic recovery (the August PMIs showed signs of weakness after the strong rebound from the April lows). The central bank will also update its view on current and future inflation levels with data once again showing very contained prices and in a context where the Fed is willing to tolerate inflation above 2% to obtain this figure as an average.
Last week, the ECB’s governing council openly disavowed its chairman by refusing to provide any hint about the potential dismantling of quantitative easing. Draghi was at pains to reconcile this rebuke with his sanguine message in Sintra pointing to a tapering decision shortly after the summer break. In the press conference following the board, he was forced to admit that for the time being inflation run far away from its medium-term goal.