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ECB may need to act if energy price rises more persistent: Schnabel

EconomyJan 08, 2022 10:46AM ET
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© Reuters. FILE PHOTO: Isabel Schnabel, member of the German advisory board of economic experts attends the 29th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski

FRANKFURT (Reuters) -Rising energy prices may force the European Central Bank to stop "looking through" high inflation and act to temper price growth, particularly if the green transition proves inflationary, ECB board member Isabel Schnabel said on Saturday.

Inflation hit a record high 5% last months, more than twice the ECB's 2% target but the bank has not tightened policy so far, arguing that price growth will abate on its own as transitory one-off factors are the main reasons for high inflation.

"The green transition poses upside risks to medium-term inflation," Schnabel said in a speech. "Rising energy prices may require a departure from a 'looking through' policy."

Schnabel said there were two scenarios in which the ECB would have to change policy.

The first one is if high energy prices feed through to other sectors of the economy and alter price setting behaviour.

"So far, however, there are no signs of broader second-round effects," Schnabel argued. "Wage growth and demands by unions remain comparatively moderate."

The second scenario would be if the path of energy prices, heavily impacted by carbon taxes and the green transition, threatens to push headline inflation above target.

Supply and demand imbalances may remain protracted amid the transition and carbon prices are likely to rise further, meaning that the contribution of energy and electricity prices to consumer price inflation could be above its historical norm in the medium term, Schnabel added.

Schnabel added that a carbon tax is unlikely to be a negative for economic growth and studies suggest that it could even have a modest positive impact.

ECB may need to act if energy price rises more persistent: Schnabel
 

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Comments (8)
Radomir Milosevic
Radomir Milosevic Jan 09, 2022 7:21AM ET
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Dont play games anymore and increase the interest rates. ECB save that small amount of credibility that you have left.
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Jan 08, 2022 8:39PM ET
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ECB will have to act if Kazakhstan style riots take place in EU over energy prices. I think they will
Todd Gray
Todd Gray Jan 08, 2022 2:44PM ET
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Well, shucks! If the ECB & EEU, a pretty much every other country's leadership weren't choking the mining, manufacturing, shipping, and wholesale & retail distribution centers, inflation would have never been a problem. But, let's pretend that was all just coincidence. Oh! Or, it was Covid's fault we caused inflation.
Empire Destroyer
Empire Destroyer Jan 08, 2022 2:26PM ET
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Lol too late, they can't do anything and whatever they do prices end up going back up soon anyways
Todd Gray
Todd Gray Jan 08, 2022 12:49PM ET
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here come the rest of the bull trap. why call it government? it should be called a Without Morality Eugenic Government. There just to good to be good.
Kaveh Sun
Kaveh Sun Jan 08, 2022 11:58AM ET
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What do thet do? Ask the sun rise at night for electricity? S ux putin dix so he sells gas n oil to them cheap?
Phil Davis
Phil Davis Jan 08, 2022 11:00AM ET
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The ECB trapped itself, they've been supporting zero rate Euro bonds. An increase makes those bonds worthless. A little unreported fact. No US Bank will take Euro bonds as collateral, none. US banks know.
Asiya Umar Bini
Asiya Umar Bini Jan 08, 2022 10:41AM ET
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pls let it force ECB hand in other for price to calm down, because the tension is too high. Everything is on high side which is not good for the economy at all.
 
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