London Daily

Focus on the big picture.
Tuesday, Sep 22, 2026

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

0:00
0:00
Close
Andy Burnham Reaffirms UK Net-Zero Target With £30 Million Community Energy Fund
Scottish Labour Leader Backs Rosebank and Jackdaw North Sea Projects
UK Consumer Confidence Falls to Three-Year Low
UK Diesel Prices Approach £2 a Litre as Global Supply Shortages Intensify
Chiltern Railways Returns to Public Ownership as UK Rail Nationalisation Advances
British Museum Faces Questions Over Peter Thiel’s Private Bayeux Tapestry Viewing
Earl Spencer Memoir Excerpts Renew Public Debate Over Diana’s Death
Liberal Democrats Gather in Brighton for Autumn Conference
Mothercare Shares Plunge as Middle East Store Closures Threaten Long-Term Solvency
Kent Police Treat Folkestone Hotel Fire as Suspicious
Caribbean Governments Advance Reparations Campaign Seeking Engagement With Britain
Scottish Labour Leader Backs Rosebank and Jackdaw North Sea Projects
FCA Urges Young Adults to Trace £1.5 Billion in Unclaimed Child Trust Funds
UK Competition Regulator Opens Inquiry Into McCormick-Unilever Foods Deal
Public Inquiry Into Tees, Esk and Wear Valleys Mental Health Failings Set to Begin
Nigel Farage Looks to US Immigration Enforcement Model for UK Border Policy
Chiltern Railways Moves Into Public Ownership
Security Review Raises Concerns Over Sensitive UK Police Data Stored on Microsoft Cloud
Burnham Government Warns of Difficult Autumn Budget as Fiscal Headroom Narrows
Bank of England Holds Rates at 3.75% as Inflation Rises to 3.1%
Ed Sheeran Tour Faces Backlash After Macklemore Is Removed Over Pro-Palestinian Remarks
Vandalism of Traffic Cameras Intensifies Across Parts of England
Nearly 300 Evacuated as Fire Hits Grand Burstin Hotel in Folkestone
King Charles Warns AI Executives About Risks From Uncontrolled Technology
Church of England Apologises for Role in Historical Forced Adoption Practices
UK Debate Over Online Speech Intensifies After Arrest Figures Draw Scrutiny
Oxfordshire Village Holds Symbolic Independence Vote Over Asylum Accommodation Plan
Nigel Farage and Richard Tice Sue National Crime Agency Over Alleged Banking Data Leaks
Apple Introduces Stricter Age Checks for UK Accounts
BBC Cash Reserves Fall 66% to £125 Million as Broadcaster Restructures
McLaren Announces £500 Million UK Investment and Plans 1,000 Jobs
Green Party Wins Historic Gorton and Denton By-Election as Labour Falls to Third
Burnham Government Prepares October Budget Under Growing Fiscal Pressure
UK Energy Suppliers Pull Fixed-Price Deals as Wholesale Markets Turn More Volatile
Bank of England Holds Rates at 3.75% as Middle East Energy Shock Raises Inflation Risks
Addison Lee Founder Loses £20 Million UK Tax Tribunal Case
BrewDog Creditors Face Losses on About £190 Million of Debt
Harrods Seeks to Recover Abuse Compensation Costs From Mohamed Al Fayed’s Estate
Ed Davey Targets Reform UK as Liberal Democrat Conference Opens
Great Britain Retail Sales Rise 0.5% in August
NHS England Approves Life-Extending Treatment for Incurable Breast Cancer
Proposals to Limit NHS ADHD Diagnoses Draw Criticism From Patient Groups
Resolution Foundation Warns of Housing Cost Crunch for Low-Income UK Families
BBC Cash Reserves Fall to Decade Low as Annual Deficit Reaches £121 Million
Millisecond Software Error Triggered Major UK Air Traffic Control Disruption
Twenty Women Underwent Unnecessary Mastectomies During NHS Cancer Care
Sensitive UK Police Data Found Vulnerable to Access by Foreign Actors
British Steel Faces Renewed Pressure for a Long-Term Financial Plan
MPs Urge Government to End Thames Water Restructuring Talks With U.S. Hedge Funds
Andy Burnham Warns of Difficult UK Budget Choices as Inflation Returns to 3.1%
×