Rise in inflation expectations won’t upend ECB’s plans

The recent strength of activity surveys, as well as increases in headline inflation and inflation expectations, are all good news for the ECB. But for now, we doubt that this will be enough to sway the Bank from its plan to continue purchasing assets throughout this year and into 2018, if needed. Indeed, there are several reasons why policymakers might be unmoved by recent increases in inflation expectations. First, some measures might overstate the actual rise in expected inflation. Second, they are still quite low by past standards. And third, medium-term expectations are inconsistent with the ECB’s target.