The president of the European Central Bank (ECB), Christine Lagarde, maintained the markets’ expectations of a rise in interest rates in 2022.
The Governing Council confirmed today at its meeting the monetary policy decisions approved in December.
But Lagarde has recognized that the situation has changed and has not closed the door to a rise in interest rates in 2022 as before, so the euro has appreciated to US $ 1.14, maximum since mid-January.
Lagarde has not reiterated that in 2022 the circumstances will not arise to raise interest rates.
Until now Lagarde and other members of the ECB had said that in 2022 the circumstances were not going to arise to raise interest rates, but today she has not repeated this statement.
Inflation figures for January have raised market expectations of an interest rate hike this year.
The situation has changed
Lagarde has said that “the situation has changed”, that there are upward risks for prices and that in March there will be more economic data to decide.
He also foresees that the conflict between Russia and Ukraine could further increase energy prices and has assured that the ECB will be very attentive to this risk.
He explained that there is aunanimous concern” in the Governing Council for the inflation figures and the impact they may have on the economy and has emphasized that the ECB will raise interest rates once all debt purchases are completed.
Inflation rises due to energy
Lagarde has considered that January inflation in the euro zone of 5.1% has been a surprise and that it is due to “higher energy costs, which increase prices in many sectors”, and higher food prices. tall.
Energy prices are the main cause of the high rate of inflation and their direct impact represents more than half of headline inflation in January.
High energy costs could curb consumption and investment more strongly than expected.
“Inflation is probably going to be high for longer than previously expected, but it is going to fall over the course of this year”, added the president of the ECB.
Given the increase in prices, the ECB is getting closer to its inflation target, which is a rate of 2% in the medium term, according to its president.
Conditions in the labor market are improving, but wage growth is generally contained.
“Returning the economy to full capacity should support faster growth in wages”.
If price increases lead to higher-than-anticipated wage increases or the economy returns to full capacity more quickly, inflation could be higher, the ECB warns.
It slows down in the first quarter, but it will rebound
Growth will remain contained in the first quarter because the current wave of the pandemic “still weighs on economic activity,” according to the ECB.
“Shortages of materials, equipment, and workers hold back production in some industries. High energy costs hurt revenues and hold back spending. However, the economy is less and less affected by variants of the pandemic”, according to Lagarde.
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