Central Bank governor says inflation fears are 'overstated'

Consumer prices in Ireland jumped 2.8% in August, the largest increase in nearly a decade

Gabriel Makhlouf's comments come as eurozone inflation accelerated to a 10-year high in August, as the global recovery pushed energy prices even higher. File picture: Vivek Prakash/Bloomberg

Fears of excessive euro area inflation are overstated and the current price pressures reflect transitory factors that will fade out over time, the governor of the Central Bank said.

However, Gabriel Makhlouf said there was considerable uncertainty about the persistence of price pressures. The governor made his comments in an address to the DEW Annual Economic Policy Conference on Friday.

He spoke about the ECB strategy review, with a focus on the revised inflation target and what the current inflationary dynamics might mean for monetary policy going forward. 

He also cautioned that “the economic experience of the pandemic and the road beyond is not uniform across all sectors”, as indicated by the existence of both slacks and bottlenecks.

"The change in the ECB’s monetary policy strategy will ensure that we can better deliver on our primary mandate of maintaining price stability, but we must always remain conscious of the other policy areas that impact on our objective.

The governor's comments come as eurozone inflation accelerated to a 10-year high in August, as the global recovery pushed energy prices even higher.

Consumer prices in EU rose 3% in August

Eurostat said consumer prices in the 19-nation bloc rose 3% in August year-on-year, after a 2.2% rise in July. It was the highest rate since November 2011.

The increases were reflected in Ireland, with August recording a 2.8% increase in the consumer price index, the largest jump in nearly a decade.

The surge is a challenge to the European Central Bank's benign view on price growth and commitment to look past what it deems a temporary increase beyond its 2% target.

The Central Bank has repeatedly raised its inflation projection this year, only for the actual numbers to beat it, and price growth now seems likely to peak only in the final months of the year, with analysts putting the peak at 3.5% to 4%.

Core inflation also surged in August. The figure, excluding volatile food and fuel prices, jumped to 1.6% on an annual basis from 0.9% in July, confirming Eurostat's earlier estimates.

An even narrower measure, which excludes alcohol and tobacco prices, also climbed to 1.6% from 0.7%, again in line with the initial estimate.

• Additional reporting Reuters