The European Central Bank (ECB) could refine its approach to achieving price stability during its delayed strategy review, assessing its inflation target and the components of the inflation basket, according to top rate setters Wednesday.
The ECB has resumed a strategy review halted by the COVID pandemic, an evaluation that will include whether the current inflation target of close to but below an annual rate of 2% “is the best what we can pick”, according to ECB chief economist Philip Lane. The ECB has failed to reach that target over the past decade, and the eurozone actually suffered deflation in August and September.
Lane and ECB president Christine Lagarde spoke at a virtual ECB Listens Event on Wednesday, at which the top brass engaged with leaders of European civil society organisations.
Lane’s comments mark the first time an ECB official has discussed reviewing the target since Lagarde raised the benefits of a symmetrical inflation target, in which consumer price growth may overshoot to compensate for periods of below-target inflation. The US Federal Reserve has already introduced such a modification in its policy framework.
“Such a strategy can strengthen the capacity of monetary policy to stabilise the economy when faced with the lower bound [of interest rates],” Lagarde said at the end of September.
But Lane also asserted that the ECB has scope to address other goals, such as maximising output and employment, under the current framework which prioritises price stability.
“Polices that are good for improving inflation performance can support secondary objectives,” he said.
Any flexibility arising from the review will not involve any change in the ECB’s mandate, according to Lagarde, which is laid down in a European Union treaty. “It’s not for us to infringe and substitute for what others should be doing,” she said.
She also suggested that current inflation measures may undervalue housing costs. “The issue of housing is coming back to haunt us in further deliberation of how we measure prices,” she said.