ECB: A Key Messaging Pivot

Published on November 17, 2021
SGH Insight
The last paragraphs of today’s just released speech by influential European Central Bank Board Member Isabel Schnabel have been flagged to us by European Central Bank officials as noteworthy and of particular significance. As many of you are inundated with news and speeches, we are flagging and sending just that key, new takeaway, of her speech as it was highlighted to us below. The speech is clear, excellent, and worth a read in its entirety.
“Eventually, if we are serious about fighting climate change, the green transition will need to bring about a measurable further rise in the price of carbon, which can be expected to lead to higher fuel and electricity prices.

These effects may become entrenched in expectations if people start to anticipate them.

Similarly, some of the bottlenecks we are observing today may not only reflect the reopening of our economy but also structural forces, such as the secular shift to electric vehicles. Adapting supply capacities to such shifts in demand can take several years.[11]
In other words, if some factors that are by nature temporary – such as supply and demand imbalances – are stronger and last longer, then inflation may become more persistent and broad-based.”
In reading that key passage from Dr. Schnabel’s comments, we believe they are especially significant in tying socially desirable, environmentally conscious green policies to inflation, to the risk and potential for higher energy prices to stick longer than initially, and still widely assumed, by the ECB, and to its potentially longer lasting impact on inflation expectations and dynamics.
Market Validation
Policy Validation

Bloomberg 11/23/21

ECB’s Schnabel Sees Inflation Risks ‘Skewed to the Upside’
Official reckons resurgent pandemic won’t ‘derail’ recovery
Executive Board member Isabel Schnabel speaks in interview

European Central Bank Executive Board member Isabel Schnabel said there’s an increasing threat of inflation taking hold, as she played down the danger that resurgent coronavirus infections might impede the euro zone’s recovery.
Isabel Schnabel
Investors resumed bets on an interest-rate increase next year after her comments in an interview in Frankfurt on Monday, just weeks before a crucial decision on stimulus.

The last paragraphs of today’s just released speech by influential European Central Bank Board Member Isabel Schnabel have been flagged to us by European Central Bank officials as noteworthy and of particular significance. As many of you are inundated with news and speeches, we are flagging and sending just that key, new takeaway, of her speech as it was highlighted to us below. The speech is clear, excellent, and worth a read in its entirety.

“Eventually, if we are serious about fighting climate change, the green transition will need to bring about a measurable further rise in the price of carbon, which can be expected to lead to higher fuel and electricity prices.

 

These effects may become entrenched in expectations if people start to anticipate them.

 

Similarly, some of the bottlenecks we are observing today may not only reflect the reopening of our economy but also structural forces, such as the secular shift to electric vehicles. Adapting supply capacities to such shifts in demand can take several years.[11]

In other words, if some factors that are by nature temporary – such as supply and demand imbalances – are stronger and last longer, then inflation may become more persistent and broad-based.”

In reading that key passage from Dr. Schnabel’s comments, we believe they are especially significant in tying socially desirable, environmentally conscious green policies to inflation, to the risk and potential for higher energy prices to stick longer than initially, and still widely assumed, by the ECB, and to its potentially longer lasting impact on inflation expectations and dynamics.

As opposed to the “on the one hand, on the other hand” headline coverage of Schnabel’s comments, this seems indeed a directionally important speech when looking at that key takeaway, combined with her overall positive message on growth.

And it is that much more interesting coming from Schnabel, who has been at the forefront in explaining the ECB’s “transitory” inflation narrative to the European and her native German public, and who is seen to be one of the leading candidates to eventually replace Jens Weidmann as President of the Bundesbank after he steps down on January 1.

Back to list