The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.0% in the 12 months to August 2021, up from 2.1% in the 12 months to July. The increase of 0.9 percentage points is the largest increase ever recorded in the CPIH National Statistic 12-month inflation rate series, which began in January 2006; however, this is likely to be a temporary change. The largest upward contribution to change is a base effect, because, in part, of discounted restaurant and café prices in August 2020 resulting from the government's Eat Out to Help Out scheme and, to a lesser extent, reductions in Value Added Tax (VAT) across the same sector. The largest upward contribution to the August 2021 CPIH 12-month inflation rate came from transport (0.87 percentage points) with further large upward contributions from restaurants and hotels (0.65 percentage points), housing and household services (0.65 percentage points), and recreation and culture (0.28 percentage points). CPIH...

Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 9-10 June 2021.

Long-term government bond yields had declined notably across advanced economies, including in the euro area, despite the ongoing strong recovery from the shock of the coronavirus (COVID-19) pandemic. Model-based evidence on the drivers of euro area yields suggested that a very large share of the recent decline in euro area risk-free rates reflected foreign spillovers, mainly in the form of an increase in global risk aversion. The fast spread of the Delta variant of the coronavirus and rising infection rates across many countries had likely been the main reason behind the increase in global risk aversion, as also reflected in the ratio of value to growth stocks having fallen markedly in recent weeks. Although the experience of the United Kingdom suggested that, so far at least, progress in vaccination campaigns had succeeded in...

25 August 2021

Could you give us an update on the outlook for the eurozone economy?

It’s important to differentiate between the first and the second halves of the year. It’s significant that second quarter GDP came in well ahead of our June projections. That reflects an earlier opening up, with many countries opening in the middle of the second quarter and onwards. The strength of the world economy and progress in vaccinations were also important factors.

In terms of the second half of the year, it’s still early days. But there’s probably some counterbalance to that good second quarter. The counterbalance is that it looks like bottlenecks are going to be more persistent than expected. There is also some moderation in the world economy, which is natural. And the Delta variant, although it has a more limited impact than earlier waves, remains a headwind.

If you put all of that together -- the fact that the second quarter came in above what we...

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William McChesney Martin, head of the Federal Reserve from 1951 to 1970, argued that the task of the central bank was to take away the punch bowl when the party was getting going.

With investors worrying in recent weeks about “peak everything” as froth accumulates in equities, bonds, housing, cryptocurrencies and heaven knows what else, the party has long since been under way and is now in full swing and more.

Indeed, the central banks have been busy topping up the punch bowl through their continued bond purchases to keep interest rates low while conducting an interminable debate on when and how to remove support. Their protestations that the risk of inflation is “transitory” look increasingly questionable.