October 5, 2022

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Lagarde: "High inflation is a temporary phenomenon in the EU, but keep your finger on the pulse" |  Financial

Lagarde: “High inflation is a temporary phenomenon in the EU, but keep your finger on the pulse” | Financial

During the press conference, ECB President Lagarde basically explained why the ECB has not yet tightened policy, despite high inflation. In the eurozone, it rose to 5.1% in January, a record high. In the Netherlands, inflation is higher at 7.6%.

The European Central Bank was not expected to act today. “No one was taking this expectation seriously,” says Karsten Brzeski, an economist at ING. “There is simply nothing the European Central Bank can do to bring down inflation immediately. The European Central Bank cannot do anything to lower energy prices. Governments can only do that, for example by cutting taxes or by contributing to households’ energy bill.”

For Lagarde, hyperinflation is still a temporary phenomenon. In March, the European Central Bank will publish new growth and inflation forecasts. The board wants to wait for this data, as well as that of the June estimate, before making significant policy changes.

Lagarde declined to say whether interest rates would be raised this year. But she didn’t want to rule that out entirely either, so the ECB is waiting for more information first. In the stock market, this was interpreted as if the door to higher interest rates were open. The central bank charted a path to phase out bond purchases over the course of the year. Only if that’s the case can interest rates go up.

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