Inflation is likely to remain elevated for much longer than previously anticipated by the European Central Bank. High consumer demand for products and services is making them more expensive and tight labor markets in many euro countries are driving up wages, ECB President Christine Lagarde said yesterday.
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The ECB then said that interest rates will need to keep rising to slow the economy sufficiently. According to Lagarde, this means that upcoming interest rate meetings will also likely raise interest rates by half a percentage point. The ECB will make a further interest rate decision in early February and then three more times in the first half of 2023.
“It is imperative that the central bank shows that it is not falling asleep and that it is taking the still unresolved inflation problem seriously,” says economist Arnoud Boot. According to Boot, inflation “has very serious consequences. Especially for vulnerable people,’ he says. “I think Lagarde wanted to give politicians a big warning.”
Lagarde actually said: politically, if you all continue to add fuel to the fire with your fiscal policy with extra spending, you will fuel inflation and force us to raise interest rates further.’
Lagarde will no doubt repeat this hundreds of times because she knows the political process is dysfunctional on this score. The tendency to spend money and accommodate voters in the short term is gigantic. The only brake on this is that the central bank is willing to raise interest rates. Whether it can ultimately be aggressive enough with its interest rate policy remains to be seen. But at least he didn’t throw in the towel. I’m glad Lagarde behaved this way.’
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
