The European Central Bank (ECB) changed their inflation goal from the earlier “below, but close to 2%” to a “symmetric 2% inflation target” over the medium term in their Monetary Policy Strategy Statement. The Governing Council (GC) confirmed that HICP Inflation (or Harmonized Index of Consumer Prices) remains the appropriate price measure and recommends inclusion of owner-occupied housing over time, the latter similar to the US inflation measure. “The new formulation removes any possible ambiguity and resolutely conveys that 2% is not a ceiling” ECB President Lagarde told reporters adding that it was a unanimous decision. While the goal is symmetric, i.e., both negative and positive deviations from the target are equally undesirable, a transitory period in which inflation is moderately above the target is allowed if negative deviations arising from an economic lower bound occur in the future. They said that the 2% inflation target provides a clear anchor for inflation expectations, which is essential for maintaining price stability. Some analysts say that this is a net dovish stance. 10Y German Bund yields dipped 4bp to -0.34% before recovering to end flat.
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