ECB vows to counter ‘undesirably high’ inflation

Publish: 7:50 PM, June 29, 2022 | Update: 7:50:PM, June 29, 2022

SINTRA, PORTUGAL : The European Central Bank will go “as far as necessary” to fight inflation that is set to remain “undesirably high” for “some time to come”, its president said Tuesday.
Soaring inflation is “a great challenge”, ECB President Christine Lagarde said in a speech at the bank’s annual conference on monetary policy.
“We will go as far as necessary to ensure that inflation stabilises at our two-percent target over the medium term,” Lagarde said.
Consumer prices rose at an 8.1-percent pace in the eurozone in May, an all-time high for the currency club.
The surge has been driven higher by the Russian invasion of Ukraine, and the ensuing rise in the cost of energy and food.
The present level of inflation in industrial and agricultural goods has “not been seen since the mid-1980s”, Lagarde said in the speech in the Portugese resort of Sintra.
The rise in the cost of energy was also “much higher than the individual spikes that occurred in the 1970s” during the oil shock, she said.
Inflation pressures are “intensifying and broadening”, Lagarde warned, while nominal wage growth has started to “pick up”.
At the same time, real wages are being “squeezed” by inflation, while economic turbulence is weighing on growth, Lagarde said.
But the central bank still expects the eurozone to swerve a recession and for growth rates to remain positive.
At the ECB’s last meeting, policymakers under pressure to respond to inflation agreed to the bank’s first interest rate hike in over a decade.
The quarter-point raise, set to take place at its next meeting on July 21, will raise rates from their historic lows.
These include a minus-0.5 rate which effectively charges banks to park their money with the bank overnight.
Lagarde repeated the ECB’s conclusion that it could “move faster” to raise rates in future, if warranted by inflation.
The Frankfurt-based institution has also set about designing an instrument to tackle an undue rise in borrowing costs for more highly indebted members of the eurozone.
The new tool would be “proportionate” and have “safeguards” to encourage “sound fiscal policy”, Lagarde said.
“There is no trade-off between launching this new tool and adopting the necessary policy stance to stabilise inflation,” she said.
Eurozone inflation figures for June are set to be published on Friday.