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ECB’s Centeno says euro zone inflation rise is temporary, sees no permanent effects

The recent rise in inflation in the euro zone and the United States is temporary and is unlikely to have permanent effects, European Central Bank (ECB) Governing Council member Mario Centeno said.

This means the ECB should be able to maintain its current asset purchase programme until March 2022 and liquidity support measures are expected to be in place “at least until June 2022”, Centeno told a banking conference in Lisbon.

“All analyses in the euro area, the U.S. and other jurisdictions indicate that the phenomena associated with inflation are of a temporary nature,” he said.

Inflation in Europe could be explained by changes to the tax framework in some countries in the region, according to Centeno, alongside supply chain difficulties.

“There is no evidence of permanent effects on the inflation rate,” he added.

Inflation in the 19 countries sharing the euro rose 0.3% month-on-month in May for a 2.0% year-on-year increase. The ECB aims to keep inflation below, but close to, 2%.

Governments have spent record amounts over the past year to save their economies from a pandemic-induced downturn, but as the recovery takes hold, a debate is underway on how and when to bring back temporarily suspended budget rules.

“It is clear that all (support) measures must be adapted as the crisis evolves… but we were fortunate to have, in 2020, the fiscal policy coordinated with monetary policy,” Centeno said.

Fiscal policy in the European Union would “benefit in 2022 from the flexibility it enjoyed in 2020 and 2021”, he added.

“This is the ideal policy framework for us to be confident that the recovery will actually happen and will be supported by these policies,” Centeno said.
Source: Reuters (Reporting by Sergio Goncalves, Writing by Victoria Waldersee, Editing by Andrei Khalip and Gareth Jones)

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