The ECB Needs to Reset Europe’s Monetary Policy
The central bank had good reasons to hesitate over raising interest rates, but the balance of risks has changed.
Think again.
Photographer: Ronald Wittek/Getty Images
Inflation in the euro area surged to 8.1% in the year to May, yet again higher than expected. Up to now, despite signs that inflation was getting entrenched, the European Central Bank had chosen to stand pat. It had its reasons, but they’re no longer persuasive.
The ECB’s task is difficult, to put it mildly — and only getting more so. European Union leaders said this week they’re moving toward a partial ban on imports of Russian oil, an essential step in forcing Vladimir Putin’s regime to end its war on Ukraine. But there’s a drawback. New restrictions on energy imports will deliver yet another supply-side shock, keeping Europe’s prices high and adding to the risk of stagflation.