Tricky ECB Job Apparent in Euro-Area Disinflation Drivers

Bloomberg Economics’ new model shows that supply-driven inflation accounts for about two-thirds of the gap between the headline reading and its historical average — demand-driven inflation accounts for about one-third. The outsize role of supply factors puts the European Central Bank in a more complicated situation than the US Federal Reserve in the short term, as it faces trickier policy trade-offs between stabilizing inflation and economic activity. Fading energy prices, however, may ultimately make the ECB’s job easier.