Europe's central bankers in the Governing Council are arguing whether they really know for sure that the current high inflation figures are only a temporary phenomenon.

And whether the central bank should therefore actually rule out interest rate hikes for a long time.

Christian Siedenbiedel

Editor in Business.

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ECB President Christine Lagarde confirmed in an interview with the French radio station France Inter on Thursday that a quick turnaround in interest rates was out of the question. The ECB does not have to be as aggressive in monetary policy as the US Federal Reserve (Fed) is likely to be. "The cycle of economic recovery in the US is ahead of that in Europe," Lagarde said. "So we have every reason not to move as quickly and ruthlessly as one might imagine with the Fed."

But already at the last meeting of the Governing Council of the ECB in the old year there were considerable differences of opinion, as can be seen from the minutes of the meeting published on Thursday.

Several central bankers apparently did not support the monetary policy decisions.

In particular, it seems to have been controversial whether the central bank should not have kept the option of quicker intervention more open, at least in its verbal announcements.

The next council meeting is just around the corner

The council will meet again in about two weeks, on February 3rd. And it will be interesting to see what happens next. Finally, the inflation rate in the euro zone has risen to 5 percent; the European statistical agency Eurostat confirmed a corresponding estimate for December on Thursday. This is the highest rate of inflation since statistics began in 1997. The rate of increase in producer prices in Germany published on Thursday also gave an indication that inflationary pressure is not easing. Prices in December were 24.2 percent higher than in the same month last year. There has never been such an increase since the Federal Republic came into existence.

The January inflation rate in the euro zone, which will be released a day before the next ECB Governing Council meeting, is likely to be less severe.

Finally, in Germany, the effect of the interim reduction in value added tax is no longer included in the inflation calculation.

However, it is not very likely that the Governing Council will be more certain about the future development of inflation the day after.

In any case, the Council was able to hear that the March meeting might not become more exciting again.

Willingness to change course?

"The ECB minutes show that the views of the members of the Council on an appropriate monetary policy response differ greatly in view of the great uncertainties that exist," said Commerzbank economist Michael Schubert, summing up his impression. “Given that not only the hawks in the ECB Governing Council, but also a number of dovish ones had signaled their readiness for a possible change of course in recent weeks, it is not too surprising for us that it was already at the December meeting differed opinions.”

It was particularly striking that some Council members had reservations about some elements of the proposed package of measures, so they could not support the package as a whole.

These reservations would have affected in particular the increase in bond purchases in the longer-term program APP and the extension of the minimum period for reinvesting the money from maturing bonds of the crisis program PEPP - as well as the statement on the flexibility of future bond purchases beyond the pandemic.

Schubert says: "The conclusion of the discussion of the council members at the December council meeting seems to be that in view of the great uncertainty, a sufficient degree of optionality is important in order to be able to react appropriately to surprising inflation developments."

Beak contra lane

It was recently noticeable that two members of the ECB leadership had made quite different public statements: ECB Executive Board member Isabel Schnabel had highlighted possible upward risks for inflation from climate protection - this was interpreted as a sign that they at least considered it possible thinks that inflation will last longer. ECB chief economist Philip Lane, on the other hand, once again emphatically defended the ECB's previous line, which assesses the current increase in inflation as only temporary.

In any case, it will be interesting to see how the roles will be allocated in the next Council meetings in the new constellation: In the past, the previous President of the Bundesbank, Jens Weidmann, had often taken on the role of the "hawk", who advocated a trend towards tighter monetary policy.

In his inaugural speech, his successor, Joachim Nagel, at least promised continuity in spirit.