FRANKFURT/LONDON : In just a few short weeks, the balance of power at the world's top central banks has shifted to conservatives, heralding the biggest wave of policy tightening in years.
But monetary policy is ineffective in curbing near-term price pressures and action now will only start to take effect when inflation is likely to be retreating sharply anyway. With the ECB joining the hawkish camp, the Bank of Japan remains by far the biggest outlier, not even contemplating policy tightening as inflation there remains stuck below target.
Inflation is without a doubt painfully high. In the euro zone, it hit a record high of 5.1per cent last month and could still go higher, while in Britain, the peak could be over 7per cent later this year. Given these limits on policy effectiveness, the swing in favour or policy hawks has been too big for some."The risk of this ending up as another 'Trichet moment' is not zero," the bank said, referring to the ECB's 2011 rate hikes to temper a small inflation bump on the eve of the bloc's debt crisis, arguably the biggest policy error in the institution's history.
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