Key Points:
- The ECB will update its inflation predictions in March.
- Official Piero Cipollone says recent euro moves remain limited.
- The currency has hovered around $1.17 for nearly a year.
- Inflation dropped to 1.7% in January, missing the target.
The European Central Bank (ECB) plans to take a close look at how the euro’s recent rise in value is affecting consumer prices. Piero Cipollone, an Executive Board member, told the Cyprus News Agency that the bank will include these currency changes in its next set of quarterly forecasts, which are due in March.
Cipollone explained that the exchange rate is just one of many tools the bank uses to predict where inflation is heading. While the euro has gained some strength recently, the Italian policymaker isn’t hitting the panic button. He noted that the currency has mostly stayed between $1.17 and $1.18 for the last year. Although there was a brief spike a few weeks ago, values have already settled back down to normal levels.
This calm approach aligns with the ECB’s recent decisions. Last week, officials chose to keep borrowing costs unchanged for the fifth meeting in a row. ECB President Christine Lagarde played down the impact of the stronger currency, stating that the bank is currently in a “good place.” Most investors and economists agree with this stance and do not expect any more rate cuts in the near future, especially after the bank already reduced rates eight times in previous cycles.
However, not everyone at the bank is entirely relaxed. Inflation in the euro area fell to 1.7% in January, which is well below the ECB’s target. A strong euro makes imported goods cheaper, which can push inflation down even further. This creates a risk for the economy.
Olli Rehn, the central bank chief of Finland, voiced his concerns on Friday. He warned that there is a real risk of inflation dropping lower than expected. He specifically pointed to the strong euro as a headwind that could slow down economic expansion.
Despite these worries, Cipollone insists on looking at the big picture. He emphasized that the ECB does not have a specific target for the exchange rate itself. Instead, they treat the currency’s value as just one input among many. When the March projections arrive, the bank will see if the current economic data matches its long-term goals.
