The central banks in Sintra, Portugal, are discussing persistently high inflation and how it can be combated. ECB President Lagarde signaled there that further rate hikes are to be expected.
The European Central Bank (ECB) still sees no end to the cycle of rising interest rates. ECB President Christine Lagarde said at the start of the ECB’s international central bank conference in Sintra, Portugal, that she could not anticipate any decisions. But “it is unlikely that the ECB will be able to say with full confidence that the peak in interest rates has already been reached anytime soon.”
Lagarde made it clear that the development of inflation had entered a second phase, which made further action necessary. Inflation was initially fueled by external shocks, fueled by high energy prices and the war in Ukraine.
According to the ECB President, there are now two other factors that are making inflation persistent: firstly, the high profits of companies, which have increased their prices much more than is necessary due to the increased costs. On the other hand, the rising collective agreements and wages.
Next increase in July
Admittedly, one does not yet see any “second-round effects” in which constantly rising costs lead to a spiral of rising wages. But the wage agreements are high and a spiral cannot be ruled out, said Lagarde. The President confirmed that there would be another rate hike in July as announced.
More are likely to follow, as the ECB’s forecasts indicate that inflation will continue to develop stubbornly. According to Lagarde, the ECB has made “significant progress” in fighting inflation. But in view of the persistence of inflation, one should not be hesitant now. “We can’t announce a win yet.”
Stubborn inflation
The central bank meeting in Sintra, about 30 kilometers west of Lisbon, is scheduled for three days. Around 175 representatives of central banks, academic institutions and international institutions are meeting here for the tenth time this year to discuss the causes of inflation and methods of combating it.
Former ECB President Mario Draghi founded the meeting in 2014, following a similar annual Fed conference in Jackson Hole. It started yesterday evening with a speech by Deputy Director of the International Monetary Fund (IMF), Gita Gopinath. She also made it clear that the ECB still has a long way to go in fighting inflation. Because inflation will remain much more persistent than in the times before the pandemic.