MNI BRIEF: Inflation May Alter Phillips Curve - ECB's Schnabel

Rate increases may be more effective in limiting price increases while doing less damage to economic output at times when inflation is higher, European Central Bank Executive Board Member Isabel Schnabel said in a speech on Monday which could provide fuel for ECB hawks.

While Schnabel stressed that more research is needed, she pointed to indications that high inflation changes the shape of the Phillips curve from that seen when inflation is not far from the 2% target, a situation in which raising rates will tend to affect activity more than prices.

This would mean that when inflation is high “monetary policy has a strong effect on inflation and a weak effect on the real economy,” Schabel said, in comments which come as the ECB expects to raise rates over its next several meetings after hiking by a total 125 basis points in September and July.

The euro was trading about 0.7% higher at USD1.01 after her comments.