ECB’s Lagarde signals further rate rises as inflation remain high

Christine Lagarde, the President of the European Central Bank, has warned that inflation remains a significant problem in the eurozone, and further rate rises are necessary to curb it. In an interview with El Correo, Lagarde said underlying price pressures would remain “sticky in the short term.” She argued that inflation is a “monster” that the bank must urgently tackle.

Lagarde’s comments followed the release of new inflation data, which showed that core price growth, which excludes food and energy, reached a new record high of 5.6%. High inflation and robust employment and wage growth have put pressure on central banks worldwide to raise interest rates.

ECB Not Seeking to “Break the Economy”

Lagarde reassured markets that the ECB’s goal was not to “break the economy” but to tame inflation. She called on banks to help by rescheduling debt repayments for consumers struggling with high variable-rate mortgages. The bank has already raised rates by 3% since last summer, and financial markets expect a further half-point increase at its March 16 meeting.

Some economists have noted that this trend could have implications for the ECB’s policy trajectory, particularly influential policymakers who have linked future rates to the evolution of core inflation. Lagarde added that it was “too early to declare victory” in the fight to bring inflation to the bank’s 2% target. Despite a reduction in energy prices, slowcore inflation means that rate rises are unavoidable.

Concerns in the US and UK

The ECB is not alone in grappling with the threat of inflation; the US Federal Reserve is facing similar challenges. High inflation, a strong labor market, and wage growth have left US policymakers questioning whether to stick with quarter-point rate rises or opt for a half-point increase.

In the UK, markets predict that the Bank of England will raise rates further, but Governor Andrew Bailey has warned that this assumption may be mistaken.

Related Facts

• The ECB has raised rates by three percentage points since last summer
• The bank’s deposit rate could jump to 4% later this year
• The UK’s Bank of England is expected to raise rates further, but Governor Bailey has expressed concerns

Key Takeaway

The ECB’s President has signaled that further interest rate rises are inevitable as the bank seeks to control persistently high inflation levels. While some economists have noted concerns about the potential impact on European banks and the wider economy, Lagarde emphasized that tackling inflation was a priority for the bank.

Conclusion

The ECB’s recent inflation data has underlined the bank’s struggles with high inflation levels. Despite recent reductions in energy prices, the core measure remains stubbornly high. This has left investors and policymakers concerned about the impact of further interest rate rises, but Lagarde’s comments suggest that the bank has few choices but to take further action.