Saudi Press

Saudi Arabia and the world
Friday, Sep 12, 2025

Europe's central bank will allow higher inflation to hit climate goals

Europe's central bank will allow higher inflation to hit climate goals

The bank said it would do more to take the impact of climate change into its monetary policy, saying that global warming could have “profound implications” for price stability.
The European Central Bank has adopted a new approach to managing the economy that would tolerate transitory periods of consumer inflation moderately above its 2% goal, and take greater account of climate change in its forecasting and stimulus programmes.

The central bank for the 19 countries that use the euro said it was replacing its previous inflation goal of “below but close to” 2% annual inflation. The new target is described as a “symmetric” 2%.

That means it would allow a "transitory period” of above-target inflation. In theory, that would give the bank space to maintain low-interest rates and stimulus programmes such as bond purchases with newly created money for a longer period of time.

ECB President Christine Lagarde said that the new goal would give the bank more room to take “especially forceful and persistent action” in the event of an unexpected economic crisis.

Such room to maneuver is especially important when market rates are close to zero, as they are now in many instances. That means the economy could more easily slip into deflation, a crippling downward spiral of prices and falling investment, without decisive central bank intervention.

The decision moves the ECB in the same direction as the U.S. Federal Reserve, which shifted to average inflation targeting last year that could allow inflation moderately above 2% for some time.

The ECB goal is not as aggressive as the Fed's, since it would “not actively aim to run inflation above target to make up for previous shortfall,” said Andrew Kenningham, chief Europe economist at Capital Economics.

“It would have no immediate implications for monetary policy, but in the long run may imply policy would be looser for longer,” Kenningham said in an emailed research note.

In another change, Lagarde said public dialogue with citizens had convinced the bank to start counting the rise in house prices in its inflation measures to better represent consumer prices as they are relevant to households. Including owner-occupied housing in the EU's inflation index would take years, however; therefore the bank said it plans to use initial estimates of housing costs to supplement its inflation measures.

The bank said it would do more to take the impact of climate change into its monetary policy, saying that global warming could have “profound implications” for price stability. It said it would expand its economic models and statistics to better assess the effect that climate change could have on the economy.

When purchasing bonds, the bank said it could take into consideration whether the companies issuing those bonds were compliant with EU legislation implementing the 2015 Paris climate change accords. Buying corporate and government bonds is a tool the bank uses to drive down borrowing costs for businesses, households and government budgets.

Buying such “green bonds” in effect makes it cheaper to finance projects deemed to lower carbon dioxide emissions, the main greenhouse gas blamed by scientists for global warming climate change.

The bank's mandate established in the basic European Union treaty is to pursue price stability. Once that is achieved, it can pursue other goals consistent with the EU's economic policies.

The new strategy will be applied at the next ECB policy meeting on July 22.
Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
Turkish authorities seize leading broadcaster amid fraud and tax investigation
Qatari prime minister says Netanyahu ‘killed any hope’ for Israeli hostages
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Big Oil Slashes Jobs and Investments Amid Prolonged Low Crude Prices
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Did the Houthis disrupt the internet in the Middle East? Submarine cables cut in the Red Sea
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Tether Expands into Gold Sector with Profit-Driven Diversification
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
Israeli Airstrike in Yemen Kills Houthi Prime Minister
After the Shock of Defeat, Iranians Yearn for Change
YouTube Altered Content by Artificial Intelligence – Without Permission
Iran Faces Escalating Water Crisis as Protests Spread
More Than Half a Million Evacuated as Typhoon Kajiki Heads for Vietnam
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Miles Worth Billions: How Airlines Generate Huge Profits
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
Beijing is moving into gold and other assets, diversifying away from the dollar
Cristiano Ronaldo Makes Surprise Stop at New Hong Kong Museum
Zelenskyy to Visit Washington after Trump–Putin Summit Yields No Agreement
High-Stakes Trump-Putin Summit on Ukraine Underway in Alaska
Iranian Protection Offers Chinese Vehicle Shipments a Cost Advantage over Japanese and Korean Makers
Saudi Arabia accelerates renewables to curb domestic oil use
Cristiano Ronaldo and Georgina Rodríguez announce engagement
Asia-Pacific dominates world’s busiest flight routes, with South Korea’s Jeju–Seoul corridor leading global rankings
Private Welsh island with 19th-century fort listed for sale at over £3 million
Sam Altman challenges Elon Musk with plans for Neuralink rival
Australia to Recognize the State of Palestine at UN Assembly
The Collapse of the Programmer Dream: AI Experts Now the Real High-Earners
Armenia and Azerbaijan to Sign US-Brokered Framework Agreement for Nakhchivan Corridor
British Labour Government Utilizes Counter-Terrorism Tools for Social Media Monitoring Against Legitimate Critics
WhatsApp Deletes 6.8 Million Scam Accounts Amid Rising Global Fraud
Nine people have been hospitalized and dozens of salmonella cases have been reported after an outbreak of infections linked to certain brands of pistachios and pistachio-containing products, according to the Public Health Agency of Canada
Texas Residents Face Water Restrictions While AI Data Centers Consume Millions of Gallons
Tariffs, AI, and the Shifting U.S. Macro Landscape: Navigating a New Economic Regime
India Rejects U.S. Tariff Threat, Defends Russian Oil Purchases
United States Establishes Strategic Bitcoin Reserve and Digital Asset Stockpile
Thousands of Private ChatGPT Conversations Accidentally Indexed by Google
China Tightens Mineral Controls, Curtailing Critical Inputs for Western Defence Contractors
OpenAI’s Bold Bet: Teaching AI to Think, Not Just Chat
BP’s Largest Oil and Gas Find in 25 Years Uncovered Offshore Brazil
JPMorgan and Coinbase Unveil Partnership to Let Chase Cardholders Buy Crypto Directly
×