By Valentina Za and Andrea Mandala
TURIN, Italy (Reuters) -Higher U.S. tariffs on European exports are likely to have little effect on euro area inflation, a top European Central Bank policymaker said, adding the main risk remained that of medium-term inflation falling below 2%.
In the text of a speech prepared for Italy’s annual Assiom-Forex financial conference, ECB Governing Council member Fabio Panetta also called for policy decisions to be “supported by communication focused on the medium-term outlook for the real economy and inflation”.
Panetta, who is governor of Italy’s central bank, said the main threat for price developments came from energy markets, where prices, especially for natural gas, are rising amid increased volatility, warranting close monitoring.
However, “overall, the available indicators seem to suggest that the predominant risk remains inflation falling below 2% over the medium term,” he said.
A possible weakening of the euro in response to the introduction of higher U.S. tariffs and any retaliation from Europe, Panetta said, would be countered by a slowdown in the global economy and by China diverting goods hit by the tariffs to European markets.
“According to our estimates, the net effect of the tariffs on inflation would be limited, if not slightly negative,” he said.
The full implementation of the tariffs announced before the U.S. election, followed by retaliatory measures, would shave 1.5 percentage points off global economic growth, Panetta said.
“For the euro area, the impact would be more limited -– around half a percentage point – but Germany and Italy would be more affected due to their strong trade ties with the United States,” he added.
(Reporting by Valentina Za and Andrea Mandala; editing by Giselda Vagnoni and Gareth Jones)
