The European Central Bank will not change the total size of its asset purchase program at its June 10 meeting. But it will start tapering its pandemic purchases later this year. They also showed inflation risks to the upside, according to a recent poll data.
In recent weeks, with an economic recovery underway and price pressures rising, calls for winding down the emergency purchases have increased. But several ECB members have said a decision to reduce purchases at the June 10 policy meeting was unlikely. Nearly 90% of economists said the ECB would leave the 1.85 trillion euros worth of asset buys under its Pandemic Emergency Purchase Program (PEPP). Angel Talavera, head of Europe economics at Oxford Economics said that as the recovery starts to gather speed, the ECB continues to walk a fine line between preserving favorable financial conditions and starting to unwind some of the emergency support measures unveiled during the pandemic.
Several ECB policymakers have said that the central bank would look through higher inflation expectations for a while before they acted. This is by viewing them as transitory. The poll showed headline inflation would pick up sharply to average 1.8% this year. According to a flash estimate, the consumer prices rose 2.0% in May. Edging above the ECB’s target of just under 2% for the first time since 2018. On a quarterly basis, inflation was expected to rise and average 1.8%, 2.1% and 2.4% in Q2, Q3 and Q4 2021, respectively. If the Q4 forecast is realized, it would be the highest average for any quarter since 2012.
Andrew Kenningham, chief Europe economist at Capital Economics said that the jump in euro zone inflation in May will not be the end of the upward trend. He added that however, most of the rise is due to temporary factors. Which includes higher energy inflation, and they expect the headline rate to drop back to well below the ECB target next year. Christoph Weil, senior economist at Commerzbank said that with the increasing easing of pandemic restrictions, the economic and social life will resume in the coming weeks. They expect the economy to recover strongly once the lockdown ends, similar to the summer of 2020.
