Francesco Canepa and Balazs Koranyi

FRANKFURT, (Reuters) – European Central Bank policymakers met last week to seek a more open acknowledgement of inflation risk. However, Philip Lane, the chief economist at the bank was unable to do so in a heated debate. Sources close the discussion told Reuters that Lane was rebuffed.

All central banks, including the U.S. Federal Reserve, have admitted that inflation can be stubborner and more persistent than originally thought. But the ECB is sticking to its story that price growth will drop below its target level in the latter part of 2022.

A significant number of policymakers questioned how accurate the ECB projections were. They pointed to the poor track record and argued that the risk of inflation ending higher next year than expected was real.

Sources said “Quite a few people wanted to admit the upside risk but Philip Lane (the source) was persistent.” “After much discussion, we agreed on small upside risks. However, that wasn’t in the final statement.

Christine Lagarde of the ECB was close to an acknowledgment when, in answer to a reporter’s question, she stated that “there might be an upside chance”.

A second source stated that the statement “didn’t exactly give back our debate”

Despite Lagarde’s efforts to reach consensus, the ECB package of measures which dialled back and extended stimulus was opposed by four policymakers.

Jens Weidmann of Germany and Gaston Reinesch from Luxembourg voted in opposition to the measure, while Pierre Wunsch of Belgium, who does not have voting rights expressed his disapproval.

Spokespeople of the ECB as well as the central banks for Germany, Austria and Luxembourg refused to comment.

Last month’s inflation spiked to 4.9%, which was the highest ever recorded in 19-country currency groups and over twice what the ECB’s 2% target. The ECB expects that it will hover around this level in the months ahead, but they anticipate it returning to 1.9% by 2022’s fourth quarter.

Sources claimed that many people questioned the accuracy of the ECB’s forecasts. These have been through numerous revisions over the years and staff models seem unable to deal with the once-in-a lifetime shock.

Inflation projections for 2022 were nearly doubled by the bank to 3.2% last Wednesday. But projections beyond that point were not raised much, with prices growing below target in both 2023, and 2024.

According to another source, “It wasn’t the friendliest conversation.” It was heated and sometimes dissenters were under pressure to be part of the majority.

Particularly concerned by the tendency of models to go back to their long-run average, policymakers were worried that there would be a significant economic shift in post-pandemic years.

All three central bank governors in Germany, Portugal and Lithuania warned publically that there was a risk that inflation will exceed the projections.

The length of the ECB commitment and its promise to reinvest the cash it has accumulated from bonds that are maturing through 2024 also disappointed policymakers who voted in opposition to the package.