European Central Bank executive board member Isabel Schnabel said on Tuesday, in an interview with the FT, that the bank must consider the "unprecedented" rise in house prices when it comes to assessing inflation and deciding on how fast monetary policy settings should be tightened. The FT framed her comments as the most hawkish yet by an ECB executive board member in the run-up to next month's meeting.
“If this [rise in house prices] were included, it would have a substantial effect on measured inflation, in particular on core inflation, where the weight of owner-occupied housing is larger" Schnabel told the UK paper. “It has to be part of our general considerations" she added.
Elsewhere, Schnabel warned that with Consumer Price Inflation having risen to a new Eurozone record high of 5.1% in January and with the unemployment rate having dropped to a Eurozone record low of 7.0% in December, “the risk of acting too late has increased." "Therefore," she continued, "we need a careful reassessment of the inflation outlook”. Schnabel warned that given the recent shift in the inflation outlook, the benefits of further QE purchases may not justify the additional costs and there is a growing argument for ending purchases altogether.
FX markets haven't reacted to Schnabel's latest remarks, but as volumes pick up during Asia Pacific trade and then into Wednesday's European session they might well lend the euro some support as traders price in a faster pace of QE taper.
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