MNI BRIEF: ECB Debate Inflation Risks, Direction -Sep Accounts

European Central Bank policymakers argued over the direction of inflation risks at the September meeting, with “several members” seeing them tilted to the downside over the medium term and “a few” viewing them to the upside, monetary accounts showed Thursday.

Those seeing risks tilted to the downside argued the appreciation of the euro had been a genuinely exogenous shock and could have larger effects, and that further appreciation was possible given Fed easing expectations. They also mentioned the risk that ETS2 would be watered down or delayed and the fact that its inflationary effect in 2027 could represent a one off adjustment, leading to a negative base effect in upcoming inflation projections. (aee MNI SOURCES: Doubts Over EU Carbon Pricing Key For ECB Rates )

Those arguing that risks were tilted to the upside noted that external forecasts for inflation in 2026 and 2027 stood above the latest staff projections and the decline in inflation back to target could also partly be attributed to volatile developments in energy prices and the exchange rate, which could easily reverse.