2023-06-27 10:55:17
The European Central Bank (ECB) will “continue” its rate hikes at its July monetary policy meeting because it is too early to “declare victory” in the fight once morest inflation in the euro zone, its president Christine Lagarde has said. Tuesday.
“Our work is not finished. Unless there is a significant change in our outlook, we will continue raising rates in July,” she told an ECB forum in Sintra, Portugal.
“In the near future, it is unlikely that the central bank will be able to say with certainty that rates have reached their peak,” added Ms. Lagarde.
The guardian institution of the euro decided at its last monetary policy meeting in June on an eighth increase in its key rates in less than a year, by a quarter of a percentage point, to bring its rate of benchmark on deposits at 3.5%.
On this occasion, Christine Lagarde had described as “very likely” the prospect of a rate hike in July, for its next meeting.
Evolution of European Central Bank (ECB) interest rates since 1999
AFP
The ECB embarked on this unprecedented cycle of monetary tightening a year ago to counter soaring prices and some voices are now calling for a pause so as not to weigh further on economic activity.
On the contrary, the official warned on Tuesday once morest a “too rapid reversal of monetary policy” in the face of a “more persistent inflation process” in the euro zone. She underlined the “uncertainty” surrounding the effect of her monetary policies, both in their “duration” and their “level”.
The rise in prices in the euro zone fell back to 6.1% over one year in May, far from the record of 10.6% reached in October, but also far from the 2% target pursued by the central bank.
“Inflation moves through the economy in phases, as different economic agents try to pass costs on to each other,” Lagarde explained.
Chart showing the evolution of inflation in the euro area since 1997
AFP
The phenomenon is thus now stimulated by rising wages, as part of a “sustainable process of catching up” in purchasing power. “Several years of wage increases await us,” said Ms. Lagarde on Tuesday.
She also called on companies to do their part by absorbing “the increase in labor costs in their margins” rather than by increasing their prices.
“If companies were to regain 25% of the lost profit margin (…), inflation in 2025 would be significantly higher (…) at nearly 3%,” she added.
The institution’s latest projections published in June forecast inflation at 5.4% this year and then falling to 2.2% (and 2.3% excluding energy) in 2025.
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