ECB Chief Warns Prolonged Inflation Challenges: Christine Lagarde, head of the European Central Bank (ECB), warned long-term economic shifts might keep inflation rates high and make money policy difficult. At the US Federal Reserve’s annual meeting, Lagarde underlined that central banks must watch for large pricing increases that could affect medium-term inflation.
After US central bank chief Jay Powell suggested there could be additional rate hikes because economic challenges aren’t handled, Lagarde spoke.
According to Lagarde, central bankers must prevent price instability from affecting inflation in the medium run. Lagarde added that companies may always pass on cost rises due to global economic factors like oil and geopolitical shocks.
Since the epidemic, consumer price rise has moderated, although many advanced countries still have inflation above 2%. Central banks worldwide seek to modify monetary policy to fight inflation without hurting businesses and customers.
At its September 14 meeting, the ECB may pause policy tightening. The bank boosted its benchmark deposit rate nine times, from -0.5% to 3.75%. Recent business polls suggest the eurozone may decelerate, but investors are divided on whether the ECB will boost rates again next month.
Also Read: Federal Reserve Addresses Persistent Inflation Concerns: Powell Indicates Rate Hikes Ahead
Lagarde didn’t command, but she said rates must be “sufficiently restrictive levels” to reduce inflation quickly. Germany’s economy has stagnated or decreased for three quarters due to industrial and global trade issues affecting sales.
There are rumors about the ECB’s ability to raise rates. In the Q&A session that followed, Lagarde said the German economy was “not broken” and cited recent events like how Germany built liquefied natural gas facilities in six months to replace Russian gas.
Economic shocks like the coronavirus pandemic and Russia’s invasion of Ukraine have increased uncertainty. Eurozone inflation has reduced by half since last year, from 10.6% to the current rate. Inflation may drop further next week from 5.3% in July to 5% in August. But a surge in European tourism might keep service sector inflation high, worrying the ECB, which wants core inflation to fall sustainably before pausing rate hikes.
The ECB raised rates later than the US Federal Reserve, Lagarde noted. She said that Europe’s dependence on Russian oil and proximity to the Ukraine war have produced unprecedented inflationary pressures.
Lagarde concluded her address by predicting that inflation will change by year’s end. Central banks, especially the ECB, must manage monetary policy in a world with various economic issues. A balanced approach that maintains the economy steady without hurting firms and customers is needed to avoid inflation and other external shocks.
Our Reader’s Queries
What is the ECB long term inflation forecast?
Inflation is expected to decrease in the coming years, albeit at a slower rate than what we have seen recently. The easing of cost pressures and the influence of the ECB’s monetary policy are likely to contribute to a decline in headline inflation from 5.4% in 2023 to 2.7% in 2024 and 2.1% in 2025, ultimately reaching 1.9% in 2026.
What is the ECB stance on inflation?
The data aligns with the ECB’s forecast that inflation hit its lowest point in November and will remain between 2.5% to 3% throughout the year, surpassing its 2% goal. However, it is expected to drop to the target level by 2025.
What is the ECB inflation target for 2023?
According to ECB staff, headline inflation is predicted to reach an average of 5.4% in 2023, followed by 2.7% in 2024, 2.1% in 2025, and 1.9% in 2026, which is close to the bank’s 2% target. However, it’s important to note that these forecasts were made before traders increased their bets on ECB rate cuts earlier this month, as Lagarde has repeatedly pointed out.
What is the inflation rate in the eurozone in November 2023?
In November 2023, the inflation rate in the euro area dropped to 2.4% from 2.9% in October. This is a significant decrease from the 10.1% rate recorded a year earlier. Meanwhile, the European Union’s annual inflation rate also decreased from 3.6% in October to 3.1% in November 2023. These figures indicate a positive trend towards stabilizing inflation rates in the region.