Contradictory views of the leaders of the "European Central" regarding the interest...a proposal to raise it by 125 basis points

Robert Holzmann, a member of the European Central Bank’s Board of Governors, said the bank must raise its interest rate by 125 basis points by next September if inflation prospects do not improve.
Holzmann told the newspaper “Kronen Zeitung” in an interview published yesterday that an initial increase in July should be 50 basis points and that a larger increase should be considered next September to proactively direct the economy towards a calmer situation. “When the situation does not improve, an increase of 0.75 percentage points may eventually become necessary,” Holtzman was quoted as saying in an interview by Bloomberg News.
Holzmann’s views contrast with the European Central Bank’s guidance, which points to an initial increase in the rate of 25 basis points this month, followed by another increase in September.
European Central Bank President Christine Lagarde said the size of the second step will depend on inflation developments and may be larger than the first.
It is noteworthy that the Russian-Ukrainian war led to huge jumps in inflation in Europe and the world in light of the rise in food and energy prices.
The world has entered a stage of inflation that has not been witnessed since the seventies and eighties, and central bank governors and economists warned during a seminar recently held by the European Central Bank in Portugal that it would take time to overcome it.
In the view of the European Central Bank, which is charged with dealing with the evolution of prices in the euro area, the current stage is unprecedented. Its president, Christine Lagarde, promised during the “Sintra” seminar in Portugal that “the current levels of inflation in the prices of food and industrial products have reached an extent not observed since the mid-1980s.”
She pointed out that “the increase in energy prices in recent months is much higher than the maximum limits that were recorded locally in the 1970s during the first oil shock.
Richard Baldwin, a professor at the Graduate Institute in Geneva, explained in a meeting in Portugal that the current price hike, which exceeded 8 per cent in May in the eurozone, follows a series of events in a chaotic world.
“After the 2020 Asian supply shock as a result of the Covid-19 epidemic, the transition in 2021 from demand for services to demand for products caused a second shock,” he said, summarizing the situation. food”.
He stressed that the factors are not limited to energy prices. With the gradual lifting of health restrictions to combat the epidemic, a sharp rise in household spending on services was recorded, and this is clearly evident with the boom in tourism and recreational activities, which in turn drives inflation.
Service prices rose 3.5 percent in May, the highest level since the mid-1990s. Indeed, this confluence of different factors is unprecedented, and Richard Baldwin argued that “there is no reference guide for this inflation”.
On the fact that prices remain high for a long time, he stressed that with Jens Stoltenberg, the Secretary-General of NATO, that the war in Ukraine may last for years, the decline in supplies may keep energy prices at a high level, noting that imported inflation may be associated with local factors specific to each country that has its own. lasting effect on inflation.
In this context, employees are increasingly demanding compensation from their companies for the decline in their purchasing power, which may contribute to inflation. The average unemployment rate in the labor market is weak in exchange for high employment intentions, which favors an increase in wages, and consequently an increase in inflation.
Communication remains initially at the heart of the central banks’ move to control prices, but Isabel Schnabel, a member of the European Central Bank’s board of directors, explained that this communication is “currently difficult in the face of high inflation numbers” when “every day people feel the pressure of severe inflation when they buy food or go to stations.” fuel, and at a time when many suffer from a significant decline in their actual income.
She stressed, “We can do little about the current inflation, but we will take decisive measures so that inflation returns to the level of the target that we set in the medium term.”
“When inflation sets in and starts fueling speculation and raising wages, monetary policy must act,” warned Sebnim Kalmeli Ozkan, a professor at the University of Maryland.
This is what the European Central Bank intends to do by raising its interest rates starting in July, while at the same time being careful not to wipe out ever-slowing economic growth.
Kalmli Ozkan warned that “the issue is not knowing whether prices will fall after a period of time, because they will eventually decline, but rather knowing what will happen to growth.”
And she continued, “Therefore, some compared the situation to the seventies, which were characterized by stagflation,” as high inflation was accompanied by weak growth, stressing that “in Europe there is a risk of stagflation.”
Michael Hartnett, chief investment strategist at Bank of America Corp., a US banking group, confirmed that there was a “recession shock” that began threatening financial markets after the broader S&P 500 index of US stocks recorded its worst semi-annual performance in more than 50 years.
And the “Bloomberg” news agency quoted a report prepared by Hartnett as saying that while the Federal Reserve is expected to approve a significant increase in interest rates, and inflation expectations will decline, the Bull & Bear index of Bank of America continued to measure the confidence of dealers in financial markets at its lowest level for the third week. Straight. Stock markets are currently declining in light of investors’ tendency to dispose of risky assets, for fear of an imminent economic recession, as inflation remains high despite the tightening of monetary policy by central banks.
Inflation in Europe rose to a new record in June on the impact of the war in Ukraine and Western sanctions on Moscow, which worries families who are now facing a sharp rise in food prices, as well as high energy prices. “Europeans are finding it difficult to buy food,” said Philip Wechter, head of economics at Ostrom Asset Management.
“We have not seen in history such a high number with regard to the share of foodstuffs, and this will have a severe impact,” he said, referring to the increase in the prices of grains and oils used in manufactured products.
Wichter expressed his concerns about the great danger to the economy as families are forced to reduce their expenditures. The inflation rate in the 19 euro countries in June reached 8.6 percent at an annual pace, after it recorded 7.4 percent in April and 8.1 percent in May, the highest figures recorded by Eurostat since the index was issued in January 1997.
The rise in consumer prices has reached record monthly levels since November, after last year was considered a temporary phenomenon caused by the economic recovery after the shock of the Covid-19 epidemic and the confusion in logistical supply chains.