2023-07-09 13:42:48
Consumer price inflation eased to 5.5 percent year-on-year in June in the euro area, but is still well above the 2 percent target the European Central Bank wants to reach by 2025.
“We have passed the peak of inflation in France (…) and we will soon reach the highest point of interest rates in the eurozone,” Vilorois de Gallau said during economic meetings in Aix-en-Provence.
“It will not be a peak but rather a high path that we have to keep for long enough to ensure full transmission of all effects of monetary policy,” he added.
In an effort to stem inflation, the central bank began a year ago to tighten monetary policy on an unprecedented scale. It raised key interest rates by 4 percentage points over the past 11 months and raised the benchmark deposit rate to 3.5 percent.
European Central Bank President Christine Lagarde said interest rate increases will continue in July.
As a result of this monetary tightening, credit applications are declining, which leads to lower demand for goods and services, and thus slower prices.
But this also leads to a slowdown in growth, which increases the concern of political officials, as is the case in Italy, where the government fears that “the cure is more harmful than the disease.”
Economists, including Frenchman Olivier Blanchard, former chief economist at the International Monetary Fund, said they supported raising the inflation target set by the European Central Bank from 2 percent to 3 percent.
But François Vilorois de Galleau, a member of the Foundation’s board of directors, strongly rejects this idea. “It’s an example of a bad idea,” he said, because lenders would “immediately demand at least 1 percent higher interest rates,” to which “risk-taking fees” would be added.
For his part, Spanish Central Bank Governor Pablo Hernandez de Cos said that the 2 percent target was “not chosen at random” but because it was “considered optimal”.
As for the Governor of the Bank of England, Andrew Bailey, he saw that this is “the practical application of price stability. It is low enough (…) but it is not zero, it is a good balance.”
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