ECB Must Take Close Look at Supply Shocks to Economy, Knot Says.

The European Central Bank is advised by Governing Council member Klaas Knot to closely monitor supply shocks that impact prices, reacting promptly if inflation expectations are at risk of deviating significantly. Knot suggests that while temporary supply shocks can be overlooked if inflation expectations remain stable, a strong response is necessary if there is a threat of de-anchoring. The ECB is currently reviewing its monetary-policy strategy, with a focus on how to best address supply shocks that may occur more frequently in the future. Critics have pointed out the risks of disregarding such shocks, as seen in past instances where interest rates were adjusted too late in response to temporary inflation surges. [Extracted from the article]