How would the ECB respond if core inflation remains sticky?

While headline inflation, and to some lesser extent core inflation, has come down significantly, it remains unclear how lasting this decline is . O ur baseline scenario foresees the underlying inflationary pressure to gradually ease allowing the ECB to cut rates throughout this and next year by 150bp. But there is a risk that the disinflationary process may stop before the ECB’s inflation target will be reached in a sustainable way . Wage growth, for example may remain elevated, reigniting i nflationary pr essures . Ho w long monetary policy would need to r emain restrictive in such a sticky core inflation scenario is ultimately a question regarding the overall effectiveness of monetary policy in brin ging inflation down . Looking at the past it seems that monetary policy has only a moderate ability to steer inflation , as neither growth n or inflation are very sensitive to changes in the ECB’s policy stance. The ECB, prima facie, would be forced to engineer a sharp decline of growth in order to have a meaningful impact on inflation. But rather than tightening monetary policy again , we think that the ECB would simply leave policy rates at its current level for a prolonged time, arguing that the disinflationary impact would eventually materialize. Only if core inflation were to start rising again and/or inflation expectations would drift upwards would the ECB see itself forced to tightening monetary policy again.