ECB (European Central Bank) must avoid overreacting to inflation, says Lagarde

 

Christine Lagarde, the president of the European Central Bank, put the inflationary risks into perspective on Tuesday and promised that the ECB would be patient before tightening its monetary policy, in order to avoid an overreaction to what it still sees as an increase temporary price.

The steady rise in inflationary pressures, fuelled by rising energy prices and supply difficulties in several sectors, has fuelled the rise in credit costs in recent weeks in the euro area, as investors revise their loans upwards. Price predictions.

"The main challenge is to ensure that we do not overreact to transient supply shocks which have no influence over the medium term, while fostering positive demand forces which can sustainably drive inflation towards our objective of 'inflation of 2% ", said Christine Lagarde at the opening of the Central Banks Forum organized by the ECB.

"We will only react to an improvement in headline inflation if we are confident that it is sustainable and reflected in the dynamics of core inflation," she added.

"We see no signs that this increase in inflation is spreading throughout the economy."

The interest rate "swaps" now include a rate hike of ten basis points over a horizon of only three years, against five to six years at the end of August.

Inflation in the euro area could reach 4% by the end of the year, double the target the ECB has set itself, but Christine Lagarde stressed that it should quickly fall below this target 2% and then remain below it for several years to come.

"The fact that inflation can moderately exceed the target during a transitional period allows us to be patient in tightening our policy, until we are certain that an improvement will be lasting," he said. -she says.

"We still need an accommodating monetary policy in order to exit the pandemic in a safe way and to bring inflation back to 2% on a lasting basis," she said.

The ECB can rely, among other things, on the fact that wage developments in the euro area remain contained and on the persistence of relatively high unemployment, which is not expected to return before the second quarter of 2023 to its level before the pandemic.

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