ECB chief economist Philip Lane said in a blog post that “the volatility of inflation during 2020-2021 can be largely attributed to the nature of the pandemic shock”. Increase in inflation in 2021 can be “best interpreted as the unwinding of disinflationary forces that took hold in 2020” only.
Medium term inflation outlook “remains subdued, amid “weak demand and substantial slack in labour and product market”. Against this background, Lane said, “ensuring favourable financing conditions is fundamental to restoring inflation momentum and guiding the formation of inflation expectations”
“Offsetting the negative pandemic shock to the inflation outlook is only the first stage of the monetary policy challenge,” he added. Even after the disinflationary pressures are offset, ” we will have to ensure that the monetary policy stance delivers the timely and robust convergence to our inflation aim.”.
