ECB hikes are wrong way to curb inflation, says Draghi’s right-hand man

A symphony of sunshine consisting of bars, traces and circles in blue and yellow, the colors of the European Union, illuminates the south facade of the European Central Financial institution (ECB) headquarters in Frankfurt, Germany, December 30, 2021. REUTERS/Wolfgang Rattay/File Picture

ROME, June 13 (Reuters) – Francesco Giavazzi, the closest financial adviser to Italian Prime Minister Mario Draghi, mentioned on Monday that European Central Financial institution rate of interest hikes weren’t the correct strategy to curb surging value rises.

The ECB final week signalled a 25 foundation level rate of interest hike in July and mentioned an even bigger improve could also be wanted in September as inflationary pressures have been growing and broadening, elevating the chance that prime value progress will grow to be entrenched.

The announcement pushed Italy’s 10-year bond yield as much as 4% for the primary time since 2014 on Monday, whereas the price of insuring publicity to Rome’s public debt rose to the very best since 2020 and financial institution shares slid.

“The ECB guarantees to boost charges in response to rising inflation with the improper instrument,” Giavazzi mentioned at a Rome convention.

“We would not have inflation stemming from home demand as in the USA, we’ve inflation linked to (surging) gasoline costs.”

Giavazzi later advised Reuters he didn’t intend to criticise the ECB, which “is utilizing the instrument at its disposal to attempt to rein in costs,” however he reiterated it was the improper instrument in present circumstances and can decelerate the economic system.

As a substitute, “governments ought to impose caps on the value of gasoline,” he mentioned, an strategy that Italy has been pushing for on the EU degree.

He added that he was talking in a private capability, and never on behalf of the federal government.

Giavazzi, a outstanding economist and former Treasury official, is in control of supervising strategic dossiers for Draghi, who was ECB president between 2011 and 2019 earlier than changing into Italian prime minister final yr.

The 2 males studied collectively way back to the Nineteen Seventies and labored carefully on the Italian Treasury within the Nineteen Nineties.

Italian EU-harmonised shopper costs (HICP) rose a preliminary 0.9% month-on-month in Could, with annual inflation accelerating sharply to 7.3% from 6.3% in April. Core inflation (internet of contemporary meals and power) was operating at 3.4% year-on-year on the HICP index in Could, up from 2.6% in April.

($1 = 0.9570 euros)

Modifying by William Maclean

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