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The surge in euro-area inflation that surprised policy makers in recent months is close to its peak, according to European Central Bank Governing Council member Francois Villeroy de Galhau.
A report on French consumer prices in December shows the first signs of stabilization and the ECB expects upward pressures to fade through 2022, the French central bank chief said in a New Year address posted on his institution’s website.
“Inflation is now close to its peak in our country and in the euro area,” Villeroy said Tuesday. “While remaining very vigilant, we believe that supply difficulties and energy pressures should gradually subside over the course of the year.”
The strength of inflation at the end of 2021 gave Villeroy and fellow ECB officials leeway to plot a course out of exceptional monetary stimulus at a December meeting. The exit will start with the expiry of net asset purchases under the central bank’s emergency Covid-19 program.
But the stabilization in prices doesn’t imply a policy shift. Rather, Villeroy repeated his prediction for a “new inflation regime” under which price growth will be closer to the ECB’s 2% target than in the years preceding the pandemic. On that basis, monetary policy would “normalize in stages,” he said.
Villeroy also shrugged off the threat of disruption from the omicron variant, saying the economic effects will be “relatively limited.” Even in an adverse scenario worse than the current situation, the Bank of France expects the economy to still return to its pre-crisis growth trajectory by 2023.
“We have learned over the past two years that every Covid wave, however serious, has diminishing economic effects,” Villeroy said.
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