The European Central Bank must be prepared to rein in inflation in the eurozone if it proves to be more persistent than expected, ECB board member Isabel Schnabel said on Wednesday, hinting at policymaker disagreements.
Last month's eurozone inflation rate was 4.1%, more than double the ECB's target, as consumers paid nearly a quarter more for energy, and demand recovered faster than supply from last year's pandemic-related slump.
Schnabel reaffirmed the ECB's view that price growth would moderate next year but warned that the outlook had become more uncertain and that policymakers should keep an open mind.
"This means avoiding the mistake of a premature tightening of monetary policy in response to a temporary and possibly short-lived inflation spike," Schnabel said adding, "On the other hand, it means keeping a watchful eye on the upside risks to inflation that financial markets currently anticipate and retain optionality to be able to act if needed."
According to Schnabel, ECB rate-setters were unanimous in recognizing that higher energy costs and supply bottlenecks were among the key drivers of inflationary pressures.
However, in a rare admission by an ECB policymaker, she stated that there was "less agreement" on whether inflation would remain high and the future course of policy. "There is less agreement on the persistence of many of these price pressures, and what they mean for the appropriate response of monetary policy," Schnabel said.
The ECB has pledged not to raise interest rates until inflation reaches 2%, and in any case not before the end of its main bond-buying program, on which it is expected to provide new guidance in December.
Markets are pricing in 2% inflation for the foreseeable future, with the ECB raising its policy rate by this time next year.