The ECB predicts high inflation in 2022 but does not stop aid despite the end of QE

The European Central Bank will accompany the end of the pandemic quantitative easing with an increase of 40 billion in aid, so as not to damage economic growth. However, inflation will remain high also in 2022

The economic rebound of 2021 contributed to at least partially recover the level of well-being prior to the pandemic. But it is proving to be a double-edged sword: due to strong global demand and huge economic subsidies, prices have been rising sharply for months now. This is why central banks are withdrawing their aid to the economy, to cool inflation: the Fed, in the United States, is the one who believes in it the most and has announced it decisively. Governor Jerome Powell said the US economy, close to full employment, no longer needs aid which will therefore end by March next year.

The European Central Bank with the meeting in mid-December has instead decided to be more cautious: the quantitative easing of 1850 billion euros launched for the pandemic (Pepp) is destined to end in March 2022 but will be accompanied by an increase in purchases of aid programs that will continue. The Asset Purchase Program (App) will in fact be enriched next year first by 40 billion per month and then by 30.

The Pepp could still come into force if the pandemic were to make itself felt again, said Christine Lagarde (governor of the ECB). Furthermore, the securities purchased in the last two years will be reinvested at least until 2024, in order not to create problems for debtor countries, including Italy.

Rate hike? In 2023, perhaps

There are also no increases in interest rates in sight, that is, in the cost of money which also affects yields, loans and mortgages: with the latest moves they should arrive no earlier than 2023, leaving the economy to breathe again. A notable difference from the Fed, which instead moves to raise them as early as next year.

This is an important fact for our country, given that almost the entire public deficit (95 per cent) is now bought by the ECB at low interest rates. On the other hand, the European Central Bank has to face the differences that exist between the different countries of the Eurozone: if in Italy the inflation rate in November was 3.7 per cent and in France 2.8 per cent, in Germany – where historically the growth of prices is more adverse – it even stood at 5.2.

Prices in the Eurozone are expected to continue to rise in 2022 at 3.2 percent, while the ECB expects them to fall below 2 – the statutory target – from 2023.

On the different strategy between the American and European central banks, Sky TG24 Business spoke out Tommaso Monacelli, economist of the Bocconi University. See his speech below.

It took a global pandemic to wake up inflation, which we haven’t seen in Europe for some time. But now the central banks, who before and who after, are moving to calm the waters. With the hope of not killing economic growth in the cradle.