ECB Must Focus on Underlying Inflation, Villeroy Says


PARIS—The European Central Bank (ECB) needs to look beyond short-term swings in energy prices and focus on underlying inflation trends, ECB policymaker Francois Villeroy de Galhau said on Tuesday.

Villeroy, who was speaking at a sustainability conference organised by The Economist magazine, said the ECB needed to normalise monetary policy to keep people’s inflation expectations anchored.

“It is indeed time to take our foot off the accelerator, as decided during our last governing council. That said, we should not overreact to short-term volatility in energy prices, and instead focus more on underlying inflation and on the medium term,” he said.

Driven by surging energy prices, euro zone inflation hit a record 5.9 percent last month. Underlying inflation, which strips out volatile items such as energy and food, is also climbing.

The crisis over Russia’s invasion of Ukraine has clouded the inflation outlook further by adding to the pressure on energy and commodities prices.

Villeroy, who is also governor of the French central bank, said the energy transition could effect inflation positively and negatively, but its impact on energy costs was most likely to result in some inflationary pressure.

Climate transition policies were not to blame for the current energy price spike, however, he said, and increases in carbon prices on the European Union’s Emissions Trading System explained only 7 percent of the power price increase in France last year.

By Leigh Thomas

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