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Inflation should fall in 2022 as supply-chain blockages and energy prices recede, though it’s likely to remain at more than 2% in the euro area for the rest of the year, according to European Central Bank Governing Council member Gabriel Makhlouf.
Makhlouf said he doesn’t expect the ECB to raise interest rates in 2022, though policy makers will “have to keep a close eye.” The “big challenge” will be to watch for any second-round effects of inflation, such as wages rising without corresponding increases in productivity, he said in an interview with KCLR’s “The Bottom Line” for broadcast on Saturday.
“If we see risks of those sort of second round effects happening then we will definitely be taking action at the European Central Bank to manage that,” he said.
Euro-area consumer prices rose a record annual rate of 5% in December after a 4.9% increase in November.
“We do see inflation falling during the course of this year,” the Irish Central Bank governor said. “It’ll probably -- in the euro area -- stay over 2% throughout the course of this year, but it’ll fall from the level it’s been at.”
As economies recover from the pandemic, monetary policy may tighten compared to the last two or three years, though the pace is “uncertain and to be seen,” Makhlouf said.
While the Bank of England raised interest rates in December and the ECB expects the U.S. Federal Reserve to do so at its next meeting, Europe is “probably on a slightly slower track to see what you might describe as normalization,” Makhlouf said.
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