Is the ECB Shift on Inflation in the Spirit of Draghi?
EDITOR NOTE: If the US economy is a complex beast that’s difficult enough to tame let alone control, then what about the 27-bloc European Union? EU’s central bank or ECB has decided, following the US Federal Reserve, to take a more aggressive approach toward boosting economic growth while aiming at a higher inflation rate of 2%. The challenge is that there are several countries experiencing inflation in excess of that target--and it seems an exceedingly difficult task to rein-in, in centralized fashion, the inflation rate of 27 independent sovereign nations. What might happen if the worst-case scenario materializes and the central bank’s plan falls apart--a seemingly unthinkable yet realistic outcome?
(Bloomberg Opinion) -- The European Central Bank has discovered that a bit more inflation need not come with a health warning. While significant in the context of ECB history, the shift brings doctrine into line with real-world forces that officials have wrestled with since the euro's inception.
Wrapping up the biggest strategy critique in almost two decades, policy makers agreed to raise their inflation goal to 2% over the medium term and regard misses on either side as equally undesirable. The decision is a departure from the previous target of “below, but close to, 2%,” which some officials felt was too vague. The step provides for inflation to go a little above the threshold during a “transitory period.”
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