MNI INTERVIEW: ECB To Include CPI Expectations In SAFE Survey

The European Central Bank hopes to publish a new series of questions about firms’ expectations for consumer price inflation as part of its Survey on the Access to Finance of Enterprises next year, and to increase the frequency of SAFE to quarterly from twice a year, ECB senior lead economist Annalisa Ferrando told MNI.

A quarterly SAFE will better coordinate it with the ECB’s Bank Lending Survey, Ferrando said in an MNI podcast together with fellow senior lead economist Petra Kohler-Ulbrich.

SAFE started asking firms about their expectations for prices at which they expect to sell their products as well as for wages in March/April, for its survey published in June, Ferrando noted. At that time, 6.1% of firms expected to increase selling prices, she said, adding that these numbers are expected to be “substantially lower” in the November survey, for which interviews were conducted in September and October.

“This is comforting information,” she said, stressing that her views, like those of Kohler-Ulbrich, are her own and do not imply an official ECB opinion. Such data has to be read with caveats, she added, because “firms’ expectations about their future selling prices can’t be compared with the normal measures of consumer price inflation expectations.”

MONETARY POLICY TRANSMISSION

While the BLS survey assesses banks’ willingness to lend, the SAFE also collects data on companies not accessing the banking system, Ferrando said, adding that approximately 6% of euro area firms are currently considered to be financially constrained, with 1% having had loan requests rejected and another 4% unwilling to apply for loans for fear of rejection.

“SAFE provides information about financing constraints that go beyond the rejection rates from the BLS,” Ferrando said.

Both SAFE and the BLS serve as early indicators of the transmission of monetary policy, the economists said. The effects of a tightening of credit standards on loans to firms as reported to the BLS are usually visible within five to six quarters, though banks’ reports of lower loan demand can generally be confirmed in lending data after about three months, Kohler-Ulbrich said.

For example, a peak in the tightening of eurozone credit standards in late 2022 and early 2023 was followed by a decrease in loan demand in the first half of 2023, likely presaging a dampening effect on loan growth between the end of this year and the first half of 2024, with a corresponding impact on growth and inflation, she noted.

“The impact via the dampening impact on loans growth development and then further on going through the euro area economy is the key element of the BLS,” she said, adding that the BLS allowed the ECB to disentangle changes to credit supply from those to credit demand during its hiking cycle.

The SAFE also shows how firms pay little attention to monetary policy announcements if these are perceived to be small or to have a positive impact on loans, but that negative or significant announcements had quite a different effect, Ferrando said.

“We found that firms respond to unanticipated changes on monetary policy by updating immediately their expectations on bank availability,” she said, “And this is before actual changes in credit conditions.”