Inflation in the euro area is falling steadily, but is still at 8.5 percent. The target of two percent inflation is therefore still a long way off. ECB President Lagarde therefore wants to stick to her course of raising the key interest rate further.
According to its President Christine Lagarde, the European Central Bank (ECB) intends to stick to raising interest rates in the fight against high inflation. Price pressure is still strong, and core inflation, which excludes volatile prices for energy, food, alcohol and tobacco, is still high, Lagarde said in the European Parliament in Strasbourg in the evening.
“Given underlying inflationary pressures, we plan to hike rates by a further 50 basis points at our next meeting in March, and we will then assess our monetary policy stance,” she said. A few weeks ago, the ECB braced itself against persistently high inflation with the fifth interest rate hike in a row. It raised the key interest rate by 0.50 percentage points to 3.0 percent. With the interest rate step announced by Lagarde, the base rate would then rise to 3.5 percent. The next interest rate meeting of the monetary authorities is scheduled for March 16th.
Although confidence is rising and energy prices have fallen, the ECB expects economic activity to remain weak in the near term, Lagarde said. It is still unclear what will happen after the renewed interest rate hike of half a percentage point that has been announced for March. Inflation in the euro zone fell to 8.5 percent in January from 9.2 percent in December thanks to a weakening energy price surge. This means that inflation has fallen for the third month in a row.
Nonetheless, the monetary authorities’ medium-term inflation target of two percent is still a long way off. In addition, core inflation has recently remained at 5.2 percent, which is worrying the euro watchdogs. Wages, meanwhile, have been rising faster, supported by robust employment momentum, Lagarde told MPs.
The main issue in wage negotiations is how wages can to some extent catch up with high inflation. “And while most measures of longer-term inflation expectations are currently around 2%, these measures should continue to be monitored,” she noted. The ECB is paying close attention to long-term inflation expectations. If these get out of hand, the central bank’s fight against high inflation will become even more difficult.
