By Silvia Marchetti
ROME (MaceNews) – The European Central Bank’s monetary policy is expected to remain accommodative despite the “significant” but “temporary” rise in inflation across the eurozone, the Bank of Italy said in its Economic Bulletin released on Friday.
According to the BOI “the significant rise in inflation is attributable to the increases in energy prices, including of natural gas, and to temporary factors” but “the key determinants, especially wage growth, have not so far pointed to high inflation persisting in the medium term”.
“The ECB’s Governing Council has confirmed its strongly expansionary stance on monetary policy: it has reiterated that maintaining favorable financial conditions is essential to support the recovery”, said the BOI.
The ECB will stay on course with the current rates, which will remain low.
“The council expects to keep the key interest rates at levels equal to or below the current ones until the outlook is for inflation to reach 2% well ahead of the end of its three-year projection horizon and in a durable way, and until the progress made by underlying inflation is sufficiently advanced as to be consistent with inflation stabilizing at 2% over the medium term”, said the BOI.
The asset purchases program will also continue but could be adjusted based on the evolution of the eurozone’s economic outlook. In the last three months of the year the pace of purchases can be moderately lower than in the previous two quarters, however, noted the bulletin, the resources available under the PEPP can be increased if necessary.
The global recovery continues at a strong pace but supply constraints emerge, warned the BOI, linked to uncertainties over the progress of vaccination campaigns and the spread of new variants of the virus.
“The tensions that have emerged over supplies of commodities and intermediate inputs are partly due to the rapidity of the recovery; however, they could affect prices for longer than initially expected”.
The BOI said Italy’s economy was back on the path towards recovery with an expected +6% rise in GDP by end of this year, above previous July expectations, but warned it had yet to fully recover from the impact of the COVID-19 pandemic.
“In Italy, the increase in GDP, which in the spring was much higher than anticipated, is likely to have exceeded 2 percent in the third quarter as well”.
Wider vaccination coverage and the increase in mobility have allowed households’ consumption of services to resume, which has accompanied the ongoing recovery in firms’ investment.
The improvement in the economic situation has translated into a rise in employment, especially in fixed-term contracts but the effects of the pandemic crisis have not been entirely overcome.
According to the BOI, even though inflation in Italy reached 2.9% in September there are no signs as yet of a strong upturn in wage growth and, despite having revised upwards their growth expectations for their selling prices, firms indicate rises of less than 2% a year.
Italy’s public accounts are also expected to improve this year compared to 2020 as Rome’s government cuts back on deficit spending but continues to fund the recovery.
—
Contact this reporter: silvia@macenews.com
Content may appear first or exclusively on the Mace News premium service. For real-time delivery contact tony@macenews.com. Twitter headlines @macenewsmacro.