MNI BRIEF:Tighter Fed, Higher Short Term EZ Inflation-ECB Blog
MNI (ROME) - Spillovers from U.S. monetary policy in the euro area “initially work in the opposite direction to ECB monetary policy” but then later go in the same direction, according to an ECB blog published on Wednesday.
A surprise tightening by the Federal Reserve would lead to an initial increase in euro area inflation as the euro weakens and makes imported goods more expensive, the blog said, pointing in particular to oil and other commodities priced in dollars. (See MNI SOURCES: ECB Likely To Tweak Language, Keep "Restrictive")
“Euro area inflation increases on average over the three months following the announcement,” the article said, adding that over time the initial inflationary impact is compensated by broader disinflationary pressures, including from a slowdown of economic activity on both sides of the Atlantic.