Inflation has not peaked. And interest rate rises will continue to occur. These are the conclusions expressed by Christine Lagarde, president of the European Central Bank, before the Economic Affairs Committee of the European Parliament.
“It has been a difficult year for Europeans, the Russian invasion has threatened our energy security and caused inflation to be well above our targets. The repercussions have been felt in Europe and the rest of the planet. Europe has been hit very hard. Energy costs have been key for inflation to soar, up to 10.6% in October”.
According to Largarde, “interest rates are and will continue to be the main tool against inflation. A higher rate reduces demand pressure, making it more expensive to obtain money and influencing citizens and companies when it comes to spending, saving, and investing. Adjustments will take a while. Rates will influence future inflation, acting as a watchdog against second-round effects that would damage productive capacity. Strong labor markets, with low unemployment, will support higher wages, which are picking up, and we will continue to assess the implications for the medium-term inflation outlook.”
“Economic support for the affected groups must be temporary, tailored, tailor-made so that it does not weaken incentives or demand,” said Lagarde: “Price stability is a necessary condition, but it is not a sufficient condition, limitations must be eliminated in the growth with economic reforms that help us recover from shocks. We are committed to reducing inflation, we are going to take the measures, we are going to take the rates to go to 2%, also in this environment and with uncertainty, we are going to make decisions, we will see how far we can go with a step-by-step evaluation”.
“Inflation reached 10.6% in October, its record”, Lagarde said: “I don’t know if I would dare to say that the peak was October, there is too much uncertainty about an element based on high energy costs that are reflected in retail level. I’d be surprised if it maxed out. But inflation will drop, also due to our monetary policy and the bottlenecks that are going to vanish, although at the moment we do not see the elements that allow us to draw conclusions that we are at the maximum and that it will drop”.