Europe's central bank intensifies focus on climate change

The European Central Bank has a new approach to monetary policy

FRANKFURT, Germany -- The European Central Bank has adopted a new approach to managing the economy that would allow the bank to tolerate transitory periods of inflation moderately above its 2% goal and to take greater account of climate change in its forecasting and stimulus programs. The new strategy announced Thursday for the 19 countries that use the euro currency also recommends including house prices in the EU's key measure of inflation. A key aspect is replacing the bank's previous inflation goal of “below but close to” 2% annual inflation. The new target is described as 2%, but “symmetric.” That means it would allow a "transitory period” of above-target inflation. In theory, that would allow the bank to maintain low interest rates and stimulus programs such as bond purchases with newly created money for a longer period of time. The bank said that counting the rise in house prices would better represent inflation as it's 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.