Fabio Panetta: Small steps in a dark room - guiding policy on the path out of the pandemic

Speech by Mr Fabio Panetta, Member of the Executive Board of the European Central Bank, at an online seminar organised by the Robert Schuman Centre for Advanced Studies and Florence School of Banking and Finance at the European University Institute, Frankfurt am Main, 28 February 2022.

Central bank speech  | 
01 March 2022
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After many years of too-low inflation in the euro area, fears have turned to the prospect that inflation may remain too high for too long. Across advanced economies, the current inflation spike is proving to be broader and more persistent than initially expected, leading central banks to reassess the risk that it could become entrenched. This is no easy task, especially in the euro area.

Economic conditions in the euro area have benefited from the strong response of monetary policy and its positive interactions with fiscal policy during the pandemic. But this is not a typical business cycle, and we are not seeing a typical recovery.

The current inflation spike is for the most part not being driven by domestic factors – by an economy that is "running hot", in other words. Demand remains below its pre-crisis trend.