Inflation not as temporary as initially thought

Trouw
Erasmus School of Economics

The mood within the European Central Bank (ECB) is changing: inflation is probably not as temporary as we thought until now. But what can the ECB do about it? In an article by Dutch newspaper Trouw, Casper de Vries, Professor of Monetary Economics at Erasmus School of Economics, comments on this.

Consumer prices are rising because of the shortage of raw materials, and sea containers to ship goods. Even labor is currently scarce, and companies are incorporating the higher wages into their product prices. Until recently, the ECB insisted that the price increases would be temporary, but as inflation continues to take hold, that message is becoming less and less tenable.

The ECB cannot do much about the shortages of raw materials or shipping containers, but it could slightly reduce its special corona support programme. At the moment, the central bank is still buying up a lot of government debt from large investors such as commercial banks, pension funds and insurers. The idea behind this was that extra investments would stimulate the economy. Meanwhile, this support seems to be causing unwanted inflation, economists say.

According to de Vries, it is difficult to maintain that corona buy-up programs are still needed. ‘If you don't reduce these programs, you are actually financing the national debt of countries as central bank. And that is not allowed under the Maastricht Treaty of 1992.’

Professor
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The full article from Trouw, 28 October 2021, can be found here (in Dutch). 

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