Ms. Lagarde, inflation rates are rising around the world. It is 6.2 percent in the USA, in Germany just under 6 percent are expected for November. Is inflation getting out of control?
We at the European Central Bank (ECB) are of course following this very closely. And not just because maintaining price stability is our main task and the inflation rate is an important indicator of this. But also because we know that inflation hits people. It is particularly the less privileged and poorer people who suffer most from inflation. That is why we must be extremely vigilant.
Do you yourself feel rising inflation in your everyday life?
Of course, the most noticeable is the rise in energy prices. After all, the rise in energy prices currently accounts for around half of the high inflation rates. If you fill up the tank at the petrol station or buy heating oil for the winter, the price increase cannot be overlooked. As a French woman, I always keep a close eye on the price of good bread at the bakery. This is noticeable at the moment and worries many people – but we do not expect this rise in inflation to be permanent. This will calm down again next year. We expect inflation rates to start falling as early as January.
What is it that makes you so sure? Will there not be so-called second-round effects if the unions also demand higher wages to compensate for the higher prices?
Based on what we know so far from surveys of employers and trade unions, no strong pressure on inflation is to be expected from this side for the time being. So far, the collective bargaining agreements have been very moderate. For the next year, somewhat higher wage demands are likely to be expected in some cases. But based on what we can see, the deals are unlikely to move on a scale that could trigger a wage-price spiral.
Don’t you think that workers could get nervous and yet at some point demand an inflation adjustment if inflation rates now reach levels that have not been seen for many years?
That doesn’t seem to be the case at the moment. And if we look at inflation expectations, both those seen in the financial markets and those resulting from surveys, most people do not expect higher inflation for long. Inflation expectations have risen, but in the medium term they are below our inflation target of 2 percent. We are not seeing any worrying unleash inflation expectations.
The best view: A view from Christine Lagarde’s office window
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Image: Frank Röth
Do you personally never have any doubts that inflation could last longer than your experts are currently predicting?
This question preoccupies me again and again. For the answer, one has to consider what are the drivers of the current high inflation rates. I would identify three groups of factors. One is the basic statistical effects associated with the pandemic. Like the lower and higher value added tax in Germany last year, which means that the rise in many prices is particularly high compared to the previous year. There are similar temporary pandemic effects for package tours, for example. These factors will automatically disappear in the next year because they fall out of the twelve-month comparison. Another driver is currently the supply bottlenecks: The increased demand after the end of the first lockdown meets a still limited supply. These bottlenecks, for example in computer chips, containers and truck capacities, are apparently lasting longer than we initially thought. But there, too, the situation will slowly improve next year. The third is energy prices. We expect developments to at least stabilize next year.
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