PARIS (Reuters) – The European Central Bank’s inflation target must be symmetric, flexible and credible with the general public rather than just financial markets, ECB policymaker Francois Villeroy de Galhau said on Thursday.
For much of the last decade, euro zone inflation has fallen short of the current target for a rate of close to but less than 2% over the medium term, prompting new ECB President Christine Lagarde to launch a review of the objective.
Weighing into the debate, Villeroy said there should be a equal tolerance for inflation both undershooting and overshooting the target.
“Our inflation target must be symmetric. If the central target is seen as a ceiling, we have less a chance of meeting it,” Villeroy, who is also head of the French central bank, said.
“It must also be flexible, and we should say how far and over what time horizon – we cannot guarantee 2.0% at all times and immediately,” Villeroy said in a speech at Paris Dauphine University.
He added that the ECB could not only take financial markets’ inflation expectations into account and needed to focus more on what households and firms thought since they set prices and wages.
Under Lagarde’s predecessor, Mario Draghi, the ECB largely focused on market-based gauges of future inflation expectations.
Villeroy said that the ECB needed to better listen to the general public on inflation and chose the most pertinent inflation index.
(Reporting by Leigh Thomas; Editing by Richard Lough)