ECB minutes show rising fears of higher medium-run inflation

The minutes from the March ECB meeting showed that inflation continued to dominate Governing Council’s discussions. The body remains split, but the balance is tilting in the hawks’ way, as more members of the Council stress the growing risks of inflation overshooting ECB’s target even in the medium term. But the dovish wing of the Council considers this a false alarm, as they see little signs of wage pressures and inflation expectations deanchoring from 2%.

What you will learn:

• Notably, the meeting took place shortly after the onset of the Russian invasion of Ukraine.
• Although it was agreed that the war forms a stagflationary shock to the eurozone economy, the risks of stagflation were downplayed. That said, the Council members saw the risk of “slowflation” – a period of slow, or slightly negative, quarter-on-quarter growth – materializing later this year as material.
• On balance, however, the growth outlook remained solid, even if the “Knightian” uncertainty around the evolution of the war in Ukraine warranted caution.