Catenaa, Friday, July 04, 2025-Researchers presenting at the upcoming ECB Forum on Central Banking are urging the European Central Bank to reconsider its 2% headline inflation target.
Instead, they recommend focusing on price growth in discretionary spending to better protect low-income households.
The ECB’s current inflation framework aims for a 2% headline rate, a stance reaffirmed in its ongoing review. Policymakers have avoided redefining the target, warning that alternatives like underlying inflation or measures including housing costs might cause confusion.
The new research argues the existing target disproportionately harms low-income, hand-to-mouth workers.
After interest rate hikes, discretionary spending, on non-essential goods and services, contracts sharply, triggering job losses in sectors that employ many lower-income workers sensitive to income swings. This reduces overall demand and amplifies economic downturns.
Targeting discretionary inflation would encourage households to smooth spending in these areas, reducing negative employment impacts in discretionary industries.
