MNI BRIEF: Stubborn Core Inflation A Lagging Indicator-Panetta

Core inflation should be seen as “a lagging and not leading indicator” for price dynamics, European Central Bank Executive Board member Fabio Panetta said during a speech on Thursday.

Underlying inflation it is "not very useful" for understanding where headline inflation is moving to in the medium term, said Panetta, adding that core inflation will remain at current levels through the summer underpinned by services sector behaviour.

Calibrating monetary policy is becoming "increasingly difficult" as prices begin to fall, he said, noting that he prefers the view of keeping rates for longer at a lower peak.

"The same level of restriction can be delivered with different levels of rates", Panetta said, adding that a lower-for long approach reduces risks of overtightening by increasing the capacity to react if policy transmission is stronger than expected. It enabled more fine-tuning that fits better within the ECB’s data-dependent approach, he said.