(Bloomberg) -- The European Central Bank can ignore supply shocks that push up prices as long as inflation expectations hold steady, but should react forcefully if there’s a danger of them deviating excessively, Governing Council member Klaas Knot said.

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“It may be optimal for monetary policy to look beyond temporary supply shocks as long as inflation expectations remain anchored, but to pivot aggressively once the risk of de-anchoring rises,” he said Thursday.

Citing inflationary forces like a declining labor force or de-globalization, he said that to the extent they affect potential output, “counteracting their contractionary effects is largely ineffective — and, in terms of inflation, it may even backfire as high inflation may become entrenched.”

The comments come amid a fresh review of the ECB’s monetary-policy strategy, with results due in the second half of 2025. Among other topics, the exercise is likely to investigate how the ECB can best act should supply shocks occur more regularly.

In the past, central banks including the ECB tended to widely disregard such shocks on the basis that the price growth they drive is only temporary. But recent years have shown that such a strategy entails risks. Critics argue that the ECB began raising interest rates too late after judging in 2021 that the surge in inflation was temporary.

Executive Board member Frank Elderson said last week that the ECB “may have to respond more proactively to bottlenecks than has been considered appropriate in the past.”

On Thursday, Knot also said stabilization tools such as longer-term refinancing operations and large-scale asset purchases such as PEPP “will remain important elements of our toolkit. We might need them again to contain market dysfunction and support monetary transmission.”

But he called for a stricter separation between instruments that steer the monetary-policy stance and those that support its transmission.

“For our toolkit, such a new separation principle would mean less scope for hybrid instruments, outside of the effective lower bound,” he said.

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