DAccording to its President Christine Lagarde, the European Central Bank (ECB) will mobilize all forces to break the wave of inflation in the euro area. “And we will do whatever it takes to bring inflation back to 2 percent,” the Frenchwoman told Spanish media group Vocento in an interview published on Sunday.
She reiterated her signal to raise interest rates by half a percentage point in the middle of the month. This is “very, very likely”. Most recently, the inflation rate fell only minimally to 8.5 percent. At the same time, the so-called core rate of the ECB is causing concern, from which the volatile prices for food and energy fall out, which frees a view of the underlying inflation.
In February, this increased for the third month in a row – to an all-time high of 5.6 percent. “In the short term, core inflation will be high,” Lagarde warned. The deposit rate of the ECB, which is decisive on the financial markets, is currently still 2.5 percent.
Progress but no victory yet
The head of the ECB had already signaled an interest rate hike of 0.5 percentage points for the meeting on March 16 and now sees the inflation trend as confirmation of the plan. Bundesbank boss Joachim Nagel and other ECB executives have not ruled out further interest rate increases after the March meeting in order to bring inflation closer to the ECB’s target of 2 percent.
In the interview, Lagarde left open how far the ECB will push interest rates up: The central bank still has more work to do in the fight against inflation and cannot yet declare victory, even if progress has been made. “My main concern is inflation,” stressed the euro zone’s supreme monetary authority, adding: “We don’t want to stall the economy. That’s not our goal. Our goal is to tame inflation.”
She is optimistic that the price pressure will ease over the course of the year. But core inflation will prove “tougher” in the near term. At the same time, she expects growth prospects to brighten after stagnating at the end of 2022.
The central bank will present new growth and inflation projections at the mid-month meeting. In December, their economists had estimated an increase in economic output in the euro area of 0.5 percent for the current year and 1.9 percent for 2024. At the same time, they expected increased price pressure for years to come: This year, the inflation rate is expected to be 6.3 percent and, according to estimates, 3.4 percent in 2024.