The European Central Bank should follow the lead of the Fed and choose rising household incomes as the underlying policy target, even if inflation temporarily rises above its target level as a result, said ECB Governing Council member Olli Rehn.
The Fed, as part of a new strategy, presented in August, will seek to achieve inflation at an average of 2%. At the same time, periods when the rise in prices will not reach the target will be offset by periods of higher inflation. The strategy is aimed at restoring full employment in the United States and propelling growth of prices in a situation where, according to the American central bank, "downside risks to employment and inflation have intensified”.
Rehn said that the new economic realities that the Fed tries to take into account are also relevant for Europe. Low unemployment is no longer achieved at the cost of high inflation, so central banks can focus on increasing social inclusion. "If this is the case, then from the point of view of economic and social welfare, it makes sense to allow a certain period of inflation overshoot, taking into account that before inflation was below the benchmark," Rehn said in an interview.
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