According to meeting accounts, policymakers at the European Central Bank were increasingly concerned that high inflation might persist and necessitate vigorous policy tightening, even at the expense of slower development.
The ECB increased rates by 75 basis points during the meeting, which was more than anticipated, and signalled further increases as the rapid inflation that was formerly limited to skyrocketing energy prices was now affecting everything from services to durable goods.
The records released on Thursday show that while some policymakers argued for a lower, 50 basis point rate hike, a ‘quite high’ number supported a larger increase, and ultimately all 25 rate-setters agreed on the choice.
The accounts stated that ‘inflation had started to become self-reinforcing,’ to the point where even an anticipated sharp slowdown in growth was insufficient to return inflation to target. The rate of inflation was too high and appeared likely to continue to be beyond the Governing Council’s aim for some time.
Policymakers came to the conclusion that while a recession was ‘increasingly plausible,’ the odds still favour higher-than-expected inflation outcomes.
The accounts stated that ‘the anticipated decrease in economic activity would not be sufficient to significantly cut inflation and would not in itself bring forecast inflation back to target.’
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