ECB’s Schnabel: Temporary inflation overshoot is necessary

It is “necessary and proportionate” that inflation overshoots the institution’s goal for a while as the economy recovers, the European Central Bank (ECB) executive board member Isabel Schnabel said on Monday.

Key quotes

“Sees growing evidence inflation expectations are finally starting to align with the ECB’s target of just under 2%.”

“Continued monetary and fiscal stimulus is needed to ensure that happens.”

“Years of repeated overprediction of the future path of inflation require that higher inflation prospects need to visibly migrate into the baseline scenario, and be reflected in actual underlying inflation dynamics.”

“Such patience may lead to inflation outcomes being moderately above our aim for a temporary period of time. This will be a necessary and proportionate requirement to set the conditions to escape low inflation.”

“Rising long-term inflation expectations suggest that the exit from the pandemic provides, for the first time in many years, some ground for cautious optimism.”

“The euro area economy may eventually escape the low growth, low inflation environment that has dominated the macroeconomic landscape for most of the past decade.”

Her comments come as the ECB prepares for a special meeting this week to debate changing its price-stability strategy.

EUR/USD flirts with 1.1850

EUR/USD is holding the lower ground near 1.1850, reversing post-NFP gains starting out a crucial week, with the FOMC minutes and ECB special strategy meeting on the cards.

The spot is losing 0.08% to trade at 1.1854, as of writing.