Some members viewed inflation risks as tilted to downside

The accounts of the European Central Bank’s (ECB) December policy meeting showed on Thursday that some members of the Governing Council viewed inflation risks as tilted to the downside, per Reuters.

Key takeaways

“December staff projections had strengthened confidence in the medium-term outlook.”

“Euro Area economic activity was proving more resilient than previously anticipated.”

“The inflation outlook continued to be in a good place.”

“Members judged that the incoming information and the december staff projections were broadly in line with their previous assessment.”

“The environment remained more uncertain than usual.”

“It was pointed out that the new staff projections still entailed a persistent undershooting of inflation lasting for the next two years.”

“All of this meant that the Governing Council could be patient.”

“Most members viewed the risks surrounding the inflation outlook as two-sided, with some members judging that the distribution of risks had shifted up.”

“It was important for the Governing Council to maintain full optionality in either direction for future meetings.”

“It was important to monitor whether services inflation and wage growth decelerated as expected.”

“Widespread concern was expressed regarding financial stability risks.”

“A few members viewed inflation risks as tilted to the upside.”

“It was therefore argued that services inflation was the aspect of inflation that was most closely connected to monetary policy.”

“The view was expressed that maintaining interest rates at their current level represented a fairly solid path under the baseline outlook.”

“It was also suggested that the stickiness in services inflation could be related to structural factors.”

“The view was expressed that the economic recovery remained fragile.”

“Worry was expressed that coming period of undershooting risked leading to a downward unanchoring of inflation expectations.”

“There was a risk that the Dollar could depreciate owing to a potentially easier than expected monetary policy stance in the United States.”

“Fiscal multipliers could be higher than assumed and the fiscal stance across the Euro Area could be looser.”

“It was argued an export-driven expansion was not viable and stronger domestic demand was deemed crucial for the Euro Area to face its external challenges.”