How to understand the mixed messages from the ECB

In dealing with the economic consequences of the war in Ukraine, the European Central Bank is relying on a deliberately vague communication strategy.
This month’s surprise move to end its asset purchase programs early raised market expectations for a rate hike or two this year.
On Thursday the ECB also announced a phasing out of its relaxed pandemic safety rules, a sign it is returning to “normalization”.
One of the ECB’s top officials, speaking at an Irish event on the same day, said he “doesn’t rule out” interest rates starting to rise in 2022 “some time” after bond buying ended.
“That can mean a week. That can be several months. I’d say I’m not ruling out a lift-off later this year,” said Frank Elderson, a member of the ECB’s six-member Executive Board, along with Ireland’s Philip Lane.
Goodbody chief economist Dermot O’Leary said Mr Elderson was “more dovish” than expectations from a market already taking a rate hike almost for granted.
Traders are currently pricing in a 0.5 percent hike in the ECB’s deposit rate by December, he said, ending an eight-year run of negative interest rates.
Mr Elderson’s compatriot, Dutch central bank governor Klaas Knot, and his counterparts in Germany, Austria and Latvia have been talking about rate hikes this year.
ECB chief economist and former head of the Central Bank of Ireland, Philip Lane, is counting on continued strong growth, even though prices have already risen to a euro-era high of 5.9 percent before the war.
Speaking at a conference in Paris this week, ECB President Christine Lagarde said that “even in the worst scenario” — rising wages bringing down inflation, a gas and oil boycott and a protracted war — euro-zone growth this year could be second to none .3 percent would reach .
The optimistic outlook gives the ECB cover to hike rates, although Mr Elderson said there are “many trade-offs” and that growth forecasts are “tipped down”.
Some economists fear a return to 1970s-style stagflation, in which rising prices coincide with little or no growth.
“Stagnation is unpredictable,” Elderson said, echoing what Ms Lagarde had said in Paris.
Stagnation is not a problem for Ireland, at least not according to the latest forecasts from the Economic and Social Research Institute, which sees the economy growing at 6.2 per cent of GDP this year.
And that’s despite inflation at 6.7 percent for the year, which could rise to as much as 8.5 percent this summer due to rising energy and food prices.
War aside, central bankers’ biggest concern is whether wage increases will lead to rising prices – although ECB officials insist they see no evidence of this yet.
Ireland’s Confederation of SMEs chief Neil McDonnell warned Irish people to be “realistic” about the huge labor costs plaguing small businesses in the care, cleaning, food, leisure, childcare, hospitality and construction sectors.
“We must face the fact that neither the Irish Government nor Irish employers will be able to fully offset the rapidly rising cost of living that citizens are facing as a result of the Russian invasion of Ukraine.”
https://www.independent.ie/business/world/how-to-make-sense-of-the-ecbs-mixed-messages-41484797.html How to understand the mixed messages from the ECB