The ECB's inflation problem
Forecast failures persist despite recent high-profile projection "introspection"
The June ECB staff inflation projections were (once more) quickly found to be stale;
Indeed, the full-year Core HICP projection for 2022 was more-or-less realized with the July inflation print—with 5 months of inflation outcomes to come;
No wonder policymakers are learning to rely less on projections and more on contemporary inflation. Does this make inflation targeting dead?
The European Central Bank (ECB) has an inflation problem.
Of course, we all have an inflation problem—the problem of managing the post-pandemic and post-energy shock price dynamic.
But they have another inflation problem—in their institutional failure to produce even half-sensible inflation forecasts to inform policy during their quarterly star-gazing exercises, also known as their macroeconomic projections.
Indeed, ECB staff projections are often stale within weeks of publication—or maybe even before they are published.
Let’s take a look at the June staff forecasts that will be revised at the next meeting in early-Sept.
We focus here on Core HICP since food and energy prices are a moving target; underlying price pressures ought to be easier to pin down.