Tuesday

18th Feb 2020

Stiglitz: ECB should scrap inflation targets

The European Central Bank (ECB) should scrap its target to keep price inflation at 2 percent, Nobel prize winning economist Joseph Stiglitz said on Thursday (6 March).

Speaking at an event organised by the European Parliament's Socialist group, Stiglitz said central banks should look to strike a balance between controlling inflation and supporting job creation.

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  • The ECB should scrap its inflation target and focus on measures to stimulate jobs - Stiglitz (Photo: World Economic Forum)

"The ECB's mandate needs to be changed," he noted.

Stiglitz is a long-standing critic of inflation-targeting by central banks, believing instead that monetary policy should be used to stimulate employment.

Stiglitz's remarks came as ECB president Mario Draghi kept the bank's headline rates, including its main interest rate, at the record low of 0.25 percent, following a meeting of the bank's governing council the same day.

Draghi said the bank decided to leave the rate unchanged because of continued signs the eurozone economy is slowly recovering.

"We saw our baseline by and large confirmed. There is a continuation of a modest recovery," he told reporters in Frankfurt.

Draghi has consistently rejected suggestions that Europe's low inflation and stagnant economy could see a repeat of Japan's economic experience, which saw companies and households hold off on spending on expectations of lower prices ahead, leading to two decades of economic stagnation.

New forecasts published by ECB staff estimate that inflation will stay at 1.0 percent this year, 1.3 percent in 2015, and 1.5 percent in 2016 - comfortably below its 2 percent target all the way through the projection.

Last month, the bloc's economic affairs commissioner, Olli Rehn, warned that low inflation is making price cuts in the peripheral economies less effective at boosting their competitiveness, making it harder to geographically rebalance the economy.

However, the ECB's main mandate under the EU treaty is tightly restricted to the maintenance of 'price stability' across the eurozone at a rate of around 2 percent per year.

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Record high inflation sparks debate about interest rates

Consumer prices in the eurozone countries climbed to four percent in June, reaching twice the rate of the European Central Bank's inflation goal. The surge has instantly sparked off a debate about whether the Frankfurt-based bank should increase interest rates.

ECB considers printing more money

The European Central Bank over the next months will consider various options of 'quantitative easing' - also known as money printing - to counter the risk of deflation.

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