Changing inflation dynamics a serious problem: ECB's Constancio

[September 22, 2017] 

FRANKFURT (Reuters) - The weakening relationship between consumer prices and real activity could make controlling inflation either more costly or more difficult, European Central Bank Vice President Vitor Constancio said on Friday.

"The apparent disconnect between inflation and economic slack seems to have made interpreting and controlling inflation dynamics more difficult, with significant consequences for the conduct of monetary policy," Constancio said in a speech.

"From a policymaker’s perspective, such an apparent breakdown is serious," he said, arguing that fighting high inflation would have a bigger drag on the real economy, while a fight against low inflation would test the limits of policy tools, given the massive stimulus required.

He argued that low wage growth in advanced economies is puzzling given relatively robust growth, and a big headache since it is a necessary component in lifting inflation back to target.

(Reporting by Balazs Koranyi; Editing by Robin Pomeroy)

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