(Bloomberg) -- The European Central Bank will disregard any temporary pickup in inflation this year caused by pent-up demand, according to Executive Board Member Isabel Schnabel.
The eventual easing of restrictions aimed to stop the spread of Covid-19 could lead prices for things like trips or restaurant meals to “develop a certain dynamic,” the policy maker said in an interview with Austrian newspaper Der Standard published Tuesday.
“But a short-term development of that sort shouldn’t be confused with a sustained rise in inflation, which is expected to be very slow to set in,” she said. “That’s why that wouldn’t affect our monetary policy decisions, which are geared toward a medium term horizon.”
The “biggest economic mistake” would be to withdraw monetary or fiscal support too soon, she said.
Euro-area inflation, currently running at -0.3%, has been driven down by pandemic-related factors such as a slump in energy prices, temporary tax breaks, and restrictions such as restaurant closures that are designed to curb the second pandemic wave.
Lockdown measures are likely to force the euro area into another contraction in the first quarter, with banks including JPMorgan Chase & Co. (NYSE:JPM) and UBS Group AG (SIX:UBSG) downgrading their forecasts.
A slow start to vaccination campaigns is also casting doubts on how quickly businesses will be able to recover.
Read more: Euro Area Heads for Double-Dip Recession as Lockdowns Drag On
The ECB, which meets to set policy next week, is combating the crisis with asset purchases, cheap loans and negative interest rates, though officials have repeatedly stressed fiscal policy is also required.
“Only government policy can provide relief by ensuring sustainable growth and encouraging investment,” Schnabel said. “The general level of interest rates will then rise again.”
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