ECB’s Lagarde: Inflation Will Remain High, Cut Support

The head of the European Central Bank said that inflation is expected to stay above the target for a long time. She also called on governments to cut back on support.

After the Fed’s interest rate hike in September, eyes were turned to the European Central Bank (ECB). While different statements were received from the members of the institution, ECB President Christine Lagarde made the expected speech.

Attending a parliamentary session in Brussels, Lagarde began her speech by denouncing Russia’s war on Ukraine. He said the economic results for the euro area have continued to improve since the last meeting in June and the outlook darkened.

“Inflation is still very high and likely to stay above our target for a long time.” said.

The latest official data released showed that inflation in the Euro Zone was at a record high of 9.1 percent in August. He added that for this reason, the ECB took a big step in September to return inflation to its 2 percent target.

Lagarde Evaluates Euro Zone Economy

Lagarde recalled that the economy grew by 0.8 percent in the second quarter of 2022, mainly due to strong consumer spending on services as the economy reopens.

But she warned that things won’t go so well in the coming quarters. He said there are four main reasons for this. She explained them as follows:

1-High inflation reduces spending and production throughout the economy, and these headwinds are strengthened by cuts in gas supply.

2- With the reopening of the economy, the strong demand for services is losing its strength.

3-Weakening global demand and worsening terms of trade will mean less support for the Eurozone economy.

4- Uncertainty still high, as reflected in falling household and business confidence

She stated that these developments led to a downward revision of the latest personnel forecasts for the remainder of the current year and economic growth throughout 2023. She referred to the growth expectation of 3.1 percent in 2022, 0.9 percent in 2023 and 1.9 percent in 2024.

She also shared the forecast that annual inflation will be 8.1 percent in 2022, 5.5 percent in 2023 and 2.3 percent in 2024. He added that risks to the inflation outlook are on the upside.

ECB Calls on Governments to Limit Food and Fuel Subsidies

She urged eurozone governments to limit food and fuel subsidies. Here, Lagarde referred to governments that announced fiscal measures to help vulnerable households.

“It is essential that the financial support used to protect households from the impact of higher prices is temporary and targeted.” Lagarde argued that this way, inflationary pressures would not be further fueled and the task of monetary policy would be easier.

It also reiterated the ECB’s recent hawkish message that interest rates should rise in the next few policy meetings, even if growth slows significantly.

Source:

https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220926_1~0bd6fcc86c.en.html