ECB’s Knot warns investors of risks of higher inflation

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FILE PHOTO: The European Central Bank (ECB) logo in Frankfurt, Germany, January 23, 2020. Businesshala/Ralph Orlowski
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AMSTERDAM (Businesshala) – Investors should be aware of the risk of rising inflation to avoid shock adjustments, even as price increases appear to be temporary, Dutch European Central Bank (ECB) policymaker Klass Knott said on Monday.

“The current risk appetite in the markets can only be sustained by low inflation and low interest rates,” the governor of the Dutch central bank told reporters.

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“I still expect the increase in inflation to be largely temporary, but we need to take into account other scenarios with structurally high inflation and high interest rates. Because if we don’t, it will lead to higher prices in the future. There could be a huge drop in that.”

Rising energy prices pushed inflation in the euro area to 3.4 percent in September, its highest level since 2008. But inflation is still expected to slow next year, as the impact of higher energy prices lessens.

“The effect of energy prices on inflation is temporary in nature, as they need to keep rising to contain inflation”, Knott said.

“But inflation is pushed even further by global supply restrictions, which may be less temporary. They may be caused by an adjustment in international trade, as supply chains are less spread around the world.

Reporting by Bart Meijer; Editing by Amelia Sithol-Mataris

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