ECB strategy review: a new inflation target

The ECB started its strategy review at the beginning of 2020 . The aim of the review is to reassess a broad range of topics related to the conduct of monetary policy . After the pandemic forced a delay, the results of the exercise are likely to be announced soon . T he “quantitative formulation of price stability” , is at the centre of the review . While the supporters of a mild form for average inflation targeting (allowing a temporary overshooting after a period of undershooting) seem to be gaining some ground in the discussion , we expect the Governing Council in the end to opt for only a moderate change in its inflation target from currently “below to but close to 2%” to a symmetric target of 2%. Two additional changes are l ikely to follow from the strategy review. We expect the ECB to incorporate house prices into the calculation of the inflation rate. It will take time, however, until national statistical offices will have concluded all the necessary work to be able to provide the needed additional data. Moreover, the inclusion of imputed rents will push inflation only marginally higher. Finally , we expect the ECB to announce a “greening” of its monetary policy, by limiting its purchases and re-investments of “brown” sectors or companies.