On Tuesday, the European Central Bank (ECB) for the first time clearly indicated the danger that current monetary policy could exacerbate inequality.

Board member Isabel Schnabel emphasized at the "Conference on Diversity and Inclusion in Economics, Finance, and Central Banking", a joint event held by several central banks, that the ultra-loose monetary policy had a positive effect on income inequality.

Through the stimulating effect of monetary policy on the economy, the central bankers succeeded in ensuring that more people were paid than would otherwise have been the case.

This was of particular benefit to those on low incomes.

Take stock and bond portfolios into account

Christian Siedenbiedel

Editor in business.

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The effects of monetary policy on the distribution of wealth are less clear. At least there is a risk that current monetary policy will increase inequality. Monetary policy, with its bond purchases, affects the prices of bonds and stocks, which benefits those households that own such securities. But that is by no means all. Less than 0.1 percent of households in the lowest net wealth quintile held bonds, while it was more than 10 percent in the top decile. And only about 1 percent of households with low net worth held shares in mutual funds, compared to 30 percent of households in the top decile of net worth. Similar proportions can also be found in the equity holdings.

"By gradually shifting the policy mix away from net asset purchases, we will prevent the distributive effect of our policies from increasing and mitigate the risks to financial stability as the economy recovers," said Schnabel.

0.4 to 0.5 percentage points more inflation with house prices

The central banker also highlighted the noticeable effects of monetary policy on house prices. She mentioned numbers that are above what had previously been assumed. In the second quarter of this year, the inflation rate in the euro zone, which had already risen, would have been 0.4 to 0.5 percentage points higher if owner-occupied residential property had been included in the calculation of the inflation rate, as in the United States, for example the case is. The inflation rate in the euro zone was between 1.6 and 2 percent in the second quarter, but rose to 4.1 percent in October. "Should we come to the conclusion that differences of this magnitude will persist in the medium term,this is how they become relevant for the appropriate calibration of our monetary policy course, ”emphasized Schnabel.

So far, the Bundesbank, which had dealt with this topic in depth, had assumed that including owner-occupied residential property could cause the inflation rate to be 0.2 to 0.3 percentage points higher than before.

In the longer term, i.e. over periods of stronger or weaker rising or even falling house prices, the effect could be minor or possibly also depress the inflation rate.

In its strategic realignment, the Governing Council decided that owner-occupied residential property should be taken into account in calculating inflation in the future.

However, the central bank does not collect the data itself; it comes from the Eurostat statistics agency.

The changeover will therefore take some time and will require political decisions.