World Economic Forum
Lagarde: No dangerous wage-price spiral in the euro area
Christine Lagarde, President of the European Central Bank (ECB). Photo: Boris Roessler/dpa
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The President of the European Central Bank, Christine Lagarde, continues to assume that the inflation rate will fall again in 2022. However, their outlook is subject to “great uncertainty”.
Europe’s currency watchdogs continue to expect falling inflation rates in the current year. However, the outlook is “afflicted with great uncertainty”.
That said the President of the European Central Bank (ECB), Christine Lagarde, on Friday at an online event of the Davos World Economic Forum.
Inflation rates have risen sharply in recent months. In Germany, consumer prices in December were 5.3 percent higher than in the same month last year. The rate of inflation in Europe’s largest economy thus climbed to its highest level since June 1992. In December, inflation in the euro area was 5.0 percent and thus higher than at any time since the introduction of the euro. Above all, the sharp increase in energy prices and supply bottlenecks fueled inflation.
inflation development
Higher inflation weakens the purchasing power of consumers because they can buy less for one euro than before. Critics accuse the ECB of fueling inflation with its ultra-loose monetary policy, including bond purchases worth billions. The central bank is aiming for a stable price level with an annual inflation rate of 2 percent in the common currency area and is at least temporarily willing to accept that this mark will be moderately exceeded or undercut.
So far, the ECB does not see a dangerous wage-price spiral that could drive up inflation in the long term, as Lagarde confirmed. At least for the moment there are no signs that inflation could get out of control as a result. “On the contrary: we assume that energy prices will stabilize over the course of 2022 (…) and then inflation rates will gradually decrease,” said Lagarde.
The ECB President had repeatedly rejected an imminent interest rate hike in the euro area. «We will have new projections in a few months. These could look different, and at that point we will have to look at our roadmap,” said Lagarde, now with a view to the central bank’s new forecasts for inflation and economic development in the euro area, which are expected for March. Referring to the central bank’s inflation target, Lagarde emphasized: “We will act as soon as the criteria are met, but they are not met at the moment.”