September 27, 2019 / 11:01 AM / 2 months ago

ECB should listen to households' view on inflation: Villeroy

FILE PHOTO: Governor of the Bank of France Francois Villeroy de Galhau delivers a speech to open a conference in Paris, France, July 16, 2019. REUTERS/Philippe Wojazer/File Photo

FRANKFURT (Reuters) - The European Central Bank should seek the views of households and firms when gauging the outlook for euro zone inflation as they hold the key to future economic developments, ECB policymaker Francois Villeroy de Galhau said on Friday.

Investors and economists have slashed their inflation expectations for the bloc since the start of the year, spurring the ECB into providing even more monetary stimulus but also raising questions about the effectiveness of such policy.

Villeroy de Galhau, who heads the Banque de France and was among dissenters when the ECB decided to resume bond purchases at a meeting earlier this month, noted households had not revised down their own forecasts.

“Since it could strongly affect the future path of inflation, such a pattern raises several important questions: will this divergence persist over time or is it very temporary?,” he told an event at Germany’s central bank.

“What are the sources of the divergence in inflation expectations between financial markets and households?”

Villeroy acknowledged that consumer perceptions about the current and future level of inflation were wide of the mark at 10% and 5% respectively - several times higher than professional measures - and argued the ECB needed to improve its communication on the matter.

But he also called for better data about household and firm inflation expectations to guide central bankers and complement views from economists and financial markets.

“While financial market expectations provide information on future financing conditions, the evolution of prices and wages depends more deeply and directly on what household and firms expect regarding future growth and inflation,” he said.

“Consequently, existing surveys among firms and households can provide very useful and valuable information on expectations.”

Reporting By Francesco Canepa; Editing by Kirsten Donovan

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