The European Central Bank may be better served looking at a new measure of inflation with a greater focus on the domestic economy, according to S&P Global Ratings.
Including prices for owner-occupied housing would add 0.3 percentage points to the current inflation rate, S&P said in a report published Wednesday, noting that other central banks that use such a component were able to raise interest rates during the economic upturn. ECB rates are at record lows and were cut again last month.
“Revisiting the measure of inflation should be high on the ECB’s agenda in order to reduce the weight of the globally traded good sector -- for which interest rates set locally cannot drive the prices,” said Sylvain Broyer, EMEA chief economist. “It would also rebalance the ECB’s monetary policy from the need for preventive easing toward the need for financial stability.”
The ECB has struggled for years to restore consumer-price growth to its goal of just under 2%, and its latest projections don’t see it getting close until at least 2021. President Mario Draghi cut in the deposit rate to minus 0.5% last month and -- in a move that split the decision-making Governing Council -- pushed through the resumption of asset purchases.
The case for such measures may have been “less evident” with the proposed enhanced inflation measure, S&P said.
To contact the reporter on this story: Yuko Takeo in Frankfurt at ytakeo2@bloomberg.net
To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net
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