Although inflation by 2024 might end up being higher than the ECB’s anticipated 2.3%. According to Knot, this risk is not reflected in market prices.
Knot: Warnings Not Taken Seriously
Knot said to the press, “The European Central Bank has frequently stressed that upside risks are disproportionately large for the inflation projection.” (The ECB has regularly indicated that risks for the inflation forecast are weighted toward the upside.)
The speaker said, “although I am uncertain how seriously that warning is taken.” But they added that they had their worries about it being taken seriously.
According to information that was provided by Knot. The government’s assistance to the general population with growing energy costs. It will likely cause general inflation in the years ahead.
Imagine it becomes the norm to provide aid on par with that of the Netherlands and Germany. If that happens, interest rates and inflation will continue to climb much higher than they are now.
In addition, the head of Germany’s central bank predicted that this trend would continue until the end of the decade. Which adds more credence to his prediction.
Several countries within the EU criticized Germany for presenting a plan to protect customers from increasing energy bills. That would cost approximately 194 billion dollars and almost 300 billion euros. The plan’s goal was to shield customers from these price hikes.
Numerous EU member states voiced opposition to Germany’s proposal. The protection of the client against these price increases was the intended outcome of the scheme.
The Dutch Government Expenditures
The expenditures that the Dutch government plans for restrictions on Energy Costs in the following Year. The total is close to 23 billion euros, almost comparable to the amount paid per person. This ceiling is scheduled to take effect in the spring of 2023.
At its meeting at the end of the Year, the ECB was expected to announce a significant rise in interest rates, just as Knot had said it would. December 30th was chosen as the day for the meeting.
“It is pronounced, based on all of the most recent bits of evidence, that we should not be slacking off. We should not be doing so at this very point in time. On the other hand, it’s too early to decide how essential a move must be because there’s still time.”
Separately on Friday in Prague, Knot said that inflation may “eat away” at people’s ability to spend money and save. As well as “frustrate” their ability to make long-term financial plans.
The ECB is “united to increase policy rates to calm the economic cycle and keep inflation stable,” he added. We’ll keep doing this until inflation expectations have settled back down to around 2% on average.