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📝 Lifting ECB Inflation Target to 4% Could Reduce Disinflation Cost: Natixis

Reducing euro-zone inflation to 2% will be very costly in terms of activity and employment.

Moving to an inflation target of 4% would reduce these costs, but \would require a high degree of price indexation of all incomes (wages. pensions, \welfare benefits. etc.): this would result in high variability in inflation.

An intermediate solution is then to raise the ECB's inflation target for additional inflation due to the energy transition (due to the rise in energy prices caused by the intermittency of renewable energy production). This would avoid penalising investment and slowing down the energy transition through the ECB's response to the inflation caused by the transition. - Natixis Research



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