The European Central Bank should abandon its objective of general inflation and, on the other hand, focus on the growth of discretionary spending prices to protect the poorest of the Eurozone, according to a document to be presented to members of a banking research conference on Friday.
The ECB has an inflation of 2% and a revision to be completed soon will not even discuss the definition of the objective, since the authorities have a long time claim that the use of different measures, such as the inflation below or numbers that incorporate the housing costs, could generate confusion.
But the document written for the PCS forum on the central banks of Sintra, in Portugal, next week, claims that the current structure compromises the low -income workers in a disproportionate way and leads to a lower result for the company.
The logic is that, after an increase in the interest rate, a discretionary spending contract much more than necessary, causing a drop in the demand for work in the sectors that produce discretionary goods and services.
“These sectors employ a broader part of low -income workers whose consumption is highly sensitive to income fluctuations,” says the document.
Therefore, the initial drop in discretionary spending becomes a wider decline in the overall demand, amplified by this impact on low -income families.
“By setting up the discretionary inflation as the objective, the Central Bank offers families an incentive to soften their discretionary expenditure; this softens the negative effects on the use of workers who work preciously in discretionary sectors,” says the document.
Although this leads to a more loose monetary policy position, the stabilization of discretionary expenditure allows the economy to fill the gap of the product so more effectively or the difference between the potential product and the real product, supported the document.
Source: Terra
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