Inflation warning from ECB President Lagarde
Lagarde refrained from being specific about the December interest rate decision and stated that inflation will remain high.
Quick Look
- ECB President Christine Lagarde stated in an interview with the Japanese newspaper Yomiuri Shimbun that inflation will remain high and pose a risk to the medium-term target.
- Stating that core inflation remained stable at 2.5% in October, Lagarde said that the effects of the second round of inflation had not yet been seen and that she refrained from making a definitive speech about the December interest rate decision.
AI-generated summary
Why It Matters
The ECB aims to bring inflation to its 2% target. In October, core inflation remained stable at 2.5% on a monthly basis. There is no evidence yet on second-round inflation effects.
European Central Bank (ECB) President Christine Lagarde made evaluations about monetary policy in her interview with the Japanese newspaper Yomiuri Shimbun published on Saturday. Lagarde said, "We know that inflation figures will remain high in the coming quarters. The higher these figures are and the longer they remain high, the greater the risk to our medium-term goal."
Stating that although core inflation remained stable at 2.5%, a relatively low level on a monthly basis in October, the ECB will examine detailed breakdowns to determine the steps it will take regarding interest rates next month, Lagarde also spoke about the second round effects.
Lagarde said that for now the central bank does not see second-round inflation impacts "beyond what is included in its forecasts." Emphasizing that they carefully monitor forward-looking indicators, multi-year wage agreements and companies' wage expectations, Lagarde added that they have not yet seen evidence of a shift.
Eurozone headline inflation remains at twice the ECB's 2% target and the economy continues to grow robustly; Several policymakers have signaled that a new quarter-point rise in interest rates is likely next month, following two steps taken since the Iran war sent energy costs skyrocketing. However, the main question centers on how much further tightening the 21-member monetary union bloc can withstand without harming economic growth. Another rate hike would push borrowing costs to the upper end of the range where their economic impact is considered harmless. The recent jump in global bond yields presents another headwind.
Avoiding speaking clearly about the December decision, Lagarde said, "I cannot tell you today that we will definitely do this in December. The only thing I know, based on the information we have today, is that significant changes will be required for the course to be different from what I expected."
What to Watch
AI outlook — possibilities, not facts
The ECB may increase interest rates by a quarter point in December.
Likely · Within weeks
Open Questions
- Will the ECB increase interest rates in December?
- When can second round inflation effects be seen?
- How long can the Eurozone economy endure tight monetary policy?
