Christine Lagarde, President of the European Central Bank (ECB), drew attention to the high course of inflation in a statement she gave to the press today.
Speaking at a central banking event in Portugal, the ECB President stated that they are still far from victory. Lagarde emphasized that inflation in the euro area will remain high for a long time and the price increase structure is changing.
ECB President Lagarde:
“The sticky situation in inflation is due to economic actors snowballing cost increases into each other.”
Lagarde also pointed to some concerns during her speech. Some of the experts focusing on the Eurozone comment that the economy will stop as a result of high interest rates. In response to this expectation, the President of the European Central Bank stated that they will keep the interest rate “as needed depending on the situation”. Lagarde gave ambiguous answers to questions about when the peak in interest rates will come.
Europe’s Inflation Story
The ECB official’s narrative has a close relationship with the Russo-Ukrainian war. While the countries in the region decided to impose sanctions as a result of the operation initiated by Russia in February 2022, the fact that the Eurozone met its energy and grain needs from Russia to a large extent led to a serious increase in oil, natural gas and wheat prices. As a result, manufacturers had to reflect cost increases up to the final buyer.
The European Central Bank, on the other hand, preferred to increase interest rates to solve the pandemic and inflation problem stemming from Russia. The ECB has increased the policy rate by 400 bps since July 2022.
While headline inflation in the euro area was recorded as 7% in April, this figure fell to 6.1% in the latest data. Speaking after the last meeting, the regional central bank officials think that interest rate hikes should continue.
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