Christine Lagarde
Europe’s economy
Historical wage growth associated with low unemployment will continue to support inflation
European Central Bank President Christine Lagarde announced that inflation in the eurozone will continue to decline in the coming months thanks to lower energy prices and higher interest rates, warning at the same time that these expectations are shrouded in “a great deal of uncertainty.”
“We expect inflation in the euro area to continue declining, and yet this outlook is still surrounded by a great deal of uncertainty,” Lagarde said in a speech at the spring meetings of the International Monetary Fund and the World Bank, the content of which was published on the European Central Bank’s website.
And following rising strongly last year due to an increase in energy prices and the recovery following the Corona virus, inflation in the euro area fell from the fall, thanks to calm in energy markets and a decrease in supply tension, according to what was reported by “Agence France Presse”.
This trend, Lagarde added, “will continue given pressures on prices which are falling and tightening monetary policy is increasingly curbing demand.”
And she added, “Historic wage growth associated with low unemployment and offsetting inflation will continue to support inflation.”
She explained that the European Central Bank is still cautious regarding its forecasts because there are many risks, both up and down.
“Greater pressures on supply chains or larger-than-expected increases in wages or profits might lead to higher inflation,” Lagarde said.
The official said that while energy prices are falling, food prices “continue to rise.”
Conversely, “tensions in financial markets and lower energy prices may lead to a faster decline in inflation,” according to Lagarde.
She pointed out that the same caution applies to economic activity, while the prospects for recovery are still fragile amid the continuing state of uncertainty.
Despite declining for five consecutive months, inflation remains at a very high level of 6.9% in March in the Eurozone. The ECB does not expect to return to its medium term target of 2% until 2025.
To counter inflation, the financial institution has raised key interest rates by 3.5 percentage points since July and does not intend to stop there.