ECB, Lagarde: “Return inflation to 2%, new rate hike in July”

In the fight to bring inflation back to levels close to the 2% target, we have made significant progress at the ECB. However, in the face of more persistent inflationary dynamics, we cannot waver and we cannot yet declare victory. This was stated by the president of the European Central Bank Christine Lagarde, in her speech at the annual conference in Sintra, published on the Eurotower website.

“Our work is not done yet. Barring a material change in the inflation outlook, we will continue to hike rates in July,” says Christine Lagarde. “The overall impact of the rate increases decided since last July, equal to 400 basis points, has not yet been fully realized”, she adds. You then specify: «It is unlikely that in the near future the central bank will be able to declare with absolute certainty that the maximum level of interest rates has been reached. The decisions of our monetary policy must in fact be defined from time to time at each meeting and continue to be guided by data”.

The president of the European Central Bank points the finger at the role of companies in the price race, a dynamic that “led the shocks to fuel inflation much more quickly and forcefully than in the past”. In past crises, “companies’ tendency had been to absorb cost increases in profit margins, since slower growth made consumers less willing to tolerate price increases. But the special conditions we experienced last year reversed this scenario and corporate profits contributed about two-thirds to domestic inflation in 2022, while in the previous 20 years their average contribution had been about one-third. i.e. half.

«In the Governing Council of the ECB, we were clear on the fact that two elements of our political position will be fundamental: we will have to bring rates to levels that are “sufficiently restrictive” and keep them there “for as long as necessary”», explains Lagarde. «Both elements are being affected by uncertainty about the persistence of inflation and the strength of monetary policy pass-through to inflation – he adds – Setting the right ‘level’ and ‘length’ will be critical to our monetary policy as we continue our tightening cycle. .