Lagarde expects a ‘slight’ rise in inflation in the coming months

Lagarde expects a 'slight' rise in inflation in the coming months

The ECB leader suggested that keeping interest rates at their current levels long enough would help return to price stability

The president of the European Central Bank (ECB), Christine Lagarde, warned on Monday that the inflation rate could rise “slightly in the coming months” and said that keeping interest rates at their current level for a long time would help restore stability. on the price.

Despite considering that “it is too early to declare victory,” the president of the ECB assured that the institution’s monetary policy is working to reduce inflation.

In a hearing of the European Parliament’s Economics Committee, he explained that the ECB expects inflationary pressures to continue to ease, “although headline inflation may rise again in the coming months, mainly due to some base effects.”

“The medium-term inflation outlook remains surrounded by a lot of uncertainty,” added Lagarde, after recalling that the overall inflation rate in the eurozone fell to 2.9% and the underlying inflation rate – which did not’ y including energy and food because these are the most volatile components – fell by 4.2% in October.

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The ECB president indicated that they expect wages to continue to be a “fundamental factor” driving domestic inflation, particularly as a result of past inflation, while corporate income, which represents most of the upward pressure recently, “now “They’re weakening. .”

He considers that a rebalance has occurred between the contribution of salaries and income to the rise in prices: the base scenario managed by the issuer envisages that salaries will continue to rise to “catch up” with inflation and that the situation in the market Work. led to a reduction in the profit margin that contributed “significantly” to inflation in 2022.

Lagarde reiterated that the ECB is “determined” to ensure that inflation returns “in a timely manner” to the 2% objective in the medium term and that the institution expects to maintain interest rates at current levels for a “long enough” duration. contribute “greatly” to restoring price stability.

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In this sense, he assured that the interest rates will remain at the “restrictive enough” level for as long as necessary and that the ECB will decide on their evolution based on data on inflation prospects, underlying inflation and the transmission of its policy.

“This is not the time to start claiming victory. “We must remain attentive to the various forces that affect inflation and remain firmly focused on our mandate of price stability,” Lagarde told MEPs.

The president of the ECB insisted, however, that the institution’s monetary policy contributed to the reduction of inflation and “we are no longer in a period of widespread inflation.”

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“We have left that stage. In October a year ago we had 10.6% which can really be defined as galloping, but now we are at 2.9%; decreased significantly. “We can’t be complacent, it’s too soon, but we’ve reduced the numbers to something closer to our goal,” he said.

In October, the ECB decided to keep interest rates unchanged after applying ten consecutive increases since July 2022, until bringing the governing rate to 4.5%, to contain inflation.

Lagarde recalled that the institution wanted this increase in rates to be passed on to the financing conditions of companies and households and hoped that it would be reflected “not only in mortgage payments, but also in the payment of deposits”, which until now rising. to a lesser extent.