ECB’s Knot Calls for In-Depth Review of Inflation Causes

ECB Governing Council member Klaas Knot said conventional wisdom about inflation is outdated.

The European Central Bank has to investigate “thoroughly” which factors nowadays determine output prices, rather than double down on its stimulus measures, the Dutch central bank president said in an interview with De Volkskrant.

While wages are rising, the costs for business “are not translating into higher output prices because firms apparently set their prices in a different manner than in the past,” Knot told the newspaper.

Knot‘s message echoes comments by Estonia’s Madis Muller, who said last week that the ECB should begin its strategy review by looking into the causes of low inflation before tweaking its target.

ECB President Christine Lagarde, who took the helm in November, is planning to have the central banks first strategic review since 2003, to be completed by the end of 2020.

A key part of the assessment will be whether the ECBs inflation target needs to be adjusted.

Knot said hes increasingly uneasy about the persistently low interest rates. One of his concerns is the increasing popularity of complex corporate credit structures.

“It cannot be ruled out that the period of low interest rates could last another five years,” he told De Volkskrant. “Such expectations worry me.”