Two key questions for the European Central Bank

CENTRAL BANKERSECBQEECBECB in Frankfurt may be feeling a little discombobulated. Having struggled to revive too-low inflation for the best part of a decade, they now find themselves hoping that too-high inflation will die down. Since the pandemic struck, the European Central Bank () has bought nearly €2trn ($2.3trn) in government bonds in order to soothe markets and gin up the economy (see chart). Now it must consider whether such quantitative easing () remains appropriate. That involves grappling with two questions at its next policy meeting on December 16th: whether the euro area has truly escaped its low-inflation trap, and whether asset purchases have outlived their usefulness. The first is easier to answer than the second.Inflation in the euro area, as in much of the rest of the world, is soaring. Consumer prices rose by 4.9% in November, compared with a year ago, the fastest pace in the history of the single currency. Many of the ’s rich-world counterparts, including the Federal Reserve and the Bank of England, are worried that inflation could become entrenched. In the euro area, however, the greater likelihood is perhaps that, once disruptions from the pandemic fade, it still undershoots the ’s 2% target.