The ECB Shouldn't Obsess About Inflation
It must make clear it's willing to tolerate some price pressures without curtailing its aggressive monetary policy.
ECB President Christine Lagarde may have to get tough.
Photographer: Frederick Florin/AFP via Getty Images
Just because something is unlikely doesn’t mean it’s not worth worrying about it. A sudden return of inflation after years of weak price pressures fits right into this category.
The euro zone is particularly exposed to a sudden return of inflation. The European Central Bank’s loose monetary policy has played an essential role in preserving financial stability in the single currency area. The ECB must be very clear that it is ready to tolerate a temporary acceleration in price pressures — however unlikely that might seem now. The alternative is to risk a repeat of the sovereign debt crisis that marred the monetary union in the early 2010s.