FRANKFURT (Reuters – Euro zone inflation is expected to return to the trend as soon as pandemic-related shortages of goods and labour are solved, Philip Lane, chief economist at the ECB said Thursday.

Lane was defending the long-held belief that the record-breaking inflation rate in eurozone was only temporary, despite mounting pressure from policymakers and investors on the ECB’s to increase interest rates.

Lane wrote in a blog, “Because bottlenecks will eventually end, price pressures must abate and inflation return to its trend without the need for any significant adjustment in monetar policy,”

Francois Villeroy De Galhau, the French governor, echoed his sentiments at an additional event.

These were most likely to lower market expectations. They are for the ECB’s early ending of bond purchases and rate increases worth 50 basis points per month by December.

Christine Lagarde, President of the ECB, stoked these feelings last week when she said that there was no way to exclude a rate rise this year. According to sources, some policymakers wanted changes in policy at the meeting last week.

Lane however defended the ECB’s “hold-steady” approach.

In his blog, he stated that the logic behind a hold-steady approach is strengthened when bottlenecks occur primarily outside of monetary policy. This could be due to global disruptions in supply and surges in global demand.

Because monetary policies drive domestic demand, tightening monetary policy to respond to an external shock in supply would result in the economy being simultaneously subjected two adverse shocks.

In December the ECB declared that they would buy bonds up to October, and then raise rates once those purchases have ended.

However, this guidance could change during the next policy meeting, March. When central banks publishes updated and most likely higher inflation forecasts, they will be changing their direction.

Luis de Guindos (ECB vice-president) stated at a separate conference that the inflation rate in the euro area, 5.1% in January and rising to 2% this year, will not drop below the ECB’s 2% goal.

The European Commission forecasts a 3.5% average rate of price growth in 2022. He also stated that wage growth in the eurozone was slowing down compared to inflation. However, he said that negotiations for larger increases may have been delayed by the pandemic.

In 2011, the ECB raised rates for the first time. This is widely considered a mistaken policy in the middle of a debt crisis and supply shock.

The rate banks pay to deposit money at the bank is currently 0.5%. Banks are required to keep their extra cash overnight at the bank.