With the ongoing war in the Middle East, higher energy prices and elevated uncertainty, it\u2019s obvious that the ECB\u2019s famous \u2018good place\u2019 is no more. Instead, the Bank is back in crisis mode, shifting its focus from longer-term projections to actual developments and back to a \u201cdriving at sight\u201d approach. Key variables to watch are actual inflation data, survey\u2011based longer\u2011term inflation expectations, and wage developments, all of which will be weighed against the risk of slowing economic activity and financial stability concerns.<\/p>\n
The only problem is that hardly any of this data will be available before next week\u2019s meeting. Looking at the calendar, there will be another batch of sentiment indicators, a handful of April country inflation releases, and initial estimates of first\u2011quarter GDP on the day of the meeting. In all honesty, that does not look sufficient to move the needle, unless the ghosts of 2022 are keeping policymakers awake at night.<\/p>\n
What are these ghosts? It\u2019s the spectre of the narrative that the ECB was too late in responding to the 2022 inflation shock and will therefore act more preemptively right now. However, back in 2022, the global economy was emerging from lockdown with healthy balance sheets and an almost unstoppable consumer appetite to go out and spend \u2013 the perfect breeding ground for fast-spreading inflation. This time, the inflationary impact of an energy price crisis is likely to be more muted, as consumers will be far more reluctant to open their wallets. You can already see that reluctance in reported willingness-to-spend indicators, which are currently well below 2022 levels. At the same time, the hit to economic activity could be sharper than in 2022, as illustrated by the decline in sentiment indicators.<\/p>\n
What is also different is that back in 2022, the ECB was emerging from an extremely accommodative stance and normalising policy from negative interest rates and quantitative easing. With hindsight, the biggest policy mistake was probably the delayed response to an energy price shock that ultimately morphed into a broader inflation surge. This time around, higher bond yields and dropping excess liquidity are already part of a more restrictive monetary policy stance, and the policy rate is at neutral, not accommodative. A very different (and better) starting position than in 2022. <\/p>\n","protected":false},"excerpt":{"rendered":"With the ongoing war in the Middle East, higher energy prices and elevated uncertainty, it\u2019s obvious that the…\n","protected":false},"author":2,"featured_media":390718,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":{"0":"post-390717","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-new-zealand","11":"tag-newzealand","12":"tag-nz"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/390717","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=390717"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/390717\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/390718"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=390717"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=390717"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=390717"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}