Christine Lagarde, president of the European Central Bank (ECB).
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European Central Bank President Christine Lagarde expressed her view on Tuesday that inflation remains high and it is premature for her organization to declare victory over rising consumer prices.
Speaking at the Sintra central banking event in Portugal, Lagarde stated, “Inflation in the euro area is still too high and is expected to persist for a considerable period. However, the nature of the inflation challenge in the euro area is evolving.”
She further added, “This persistence is a result of inflation gradually impacting the economy in various phases, as different economic actors attempt to shift the costs onto one another.”
The headline inflation for May stood at 6.1% in the region, a decrease from 7% in April. Nevertheless, the ECB aims to bring inflation down to 2%.
The euro area experienced higher inflation rates primarily due to the energy cost surge caused by Russia’s invasion of Ukraine. However, these effects have subsided in recent months, and the largest price surges have been observed in food products.
Lagarde stressed, “We have made significant progress, but we must not waver or prematurely declare victory in the face of more persistent inflation.”
The ECB has increased rates by 400 basis points since July 2022. Market participants have already accounted for another rate hike next month and are considering a further move in September.
Some economists are raising concerns about when the ECB might need to reverse its tighter policy, fearing that higher rates could significantly slow down the economy. However, Lagarde suggested it is premature to consider such actions.
“We need to clearly communicate that we will maintain these levels for as long as necessary. This will prevent expectations of a rapid policy reversal from arising due to rate hikes and will allow the full impact of our past actions to materialize,” she explained.
She further stated, “It is unlikely that the central bank will be able to confidently declare in the near future that peak rates have been reached. Therefore, our policy must be decided in each meeting and remain dependent on the available data.”
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