Case for ECB action will be stronger if inflation trends persist - Makhlouf

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The European Central Bank (ECB) logo in Frankfurt, Germany, January 23, 2020. REUTERS/Ralph Orlowski

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DUBLIN, Nov 23 (Reuters) - The case for European Central Bank monetary policy action will become stronger if current inflation trends persist but incoming data do not show evidence of such an outcome, Governing Council member Gabriel Makhlouf said on Tuesday.

Inflation in the euro zone hit 4.1% in October, pushed up by higher energy costs, and is expected to stay above the ECB's 2% target next year as suppliers strained by the pandemic cannot keep up with the reopening of the economy.

Makhlouf, Ireland's central bank chief, said the ECB must be conscious of the effects of tightening policy, when recovery from the pandemic remains highly uncertain and that the wrong monetary policy action today could prove more costly than risks stemming from current spike in inflation.

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However he said policymakers cannot afford to be complacent.

"We need to recognise that there are risks to the inflation outlook. If current trends in inflation persist, the case for monetary policy action becomes stronger," Makhlouf said in a speech published on the Irish central bank website.

"Incoming data do not currently show evidence that would lead us to think that inflation pressures are becoming persistent, but this could evolve and we must remain vigilant and cognisant of the risks."

The ECB is due to decide at its Dec. 16 meeting on the future of its two bond-purchase programmes - one launched in response to the coronavirus pandemic and the other in 2015.

Makhlouf said given the remarkable levels of uncertainty in the global economy, the ECB should keep its options open regarding its policy tools and "not lock ourselves into commitments that put our price stability objective at risk."

He added that recent euro zone data does not suggest - "at least thus far" - that higher inflation is feeding into broad-based higher wage demands, a key trend policymakers are monitoring.

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Reporting by Padraic Halpin; Editing by Kevin Liffey and Angus MacSwan

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