The European Central Bank’s governor said the Ukrainian pandemic and the war had “unleashed” inflation, exacerbating the challenges the central bank faces in returning inflation to its target.
“I don’t think we’re going back to that environment,” said Christine Lagarde, the bank’s president, who has kept prices low for the past two decades. She added that the era of low inflation, premised on the progress of globalization, has changed, but the extent of it is still under debate. Meanwhile, inflation expectations are rising in the region, where policy makers carefully watch over whether price increases go out of control.
“As a result of this massive geopolitical shock we are facing now, there is unleashed power as a result of a pandemic, which will change the situation and landscape in which we are active,” Lagarde said. Said.
Lagarde spoke with the leaders of the Federal Reserve Bank and the Bank of England at the European Central Bank’s annual forum in Sintra, Portugal.
On Tuesday, Mr. Lagarde said that eurozone inflation was “Undesirably highIn July, he repeated the bank’s plan to raise interest rates for the first time in more than 10 years. Inflation exceeded 8% in May, well above the central bank’s target of 2%, across the euro area.At the beginning of Wednesday, the data showed Spain’s annual inflation rate exceeds 10% First time since 1985. Fed Chair Jerome H. Powell and Bank of England Governor Andrew Bailey agreed that this was a new period of inflation and a time policymakers needed to counter. Powell added that the Fed could not allow the US economy to move from a low-inflationary environment to a high-inflationary regime in the long run.
“Since the pandemic, we have lived in a world where the economy is driven by very different forces,” Powell said after a period of disinflationary dominance.
Both the euro area and the United Kingdom have experienced energy price shocks exacerbated by Russia’s invasion of Ukraine. “The energy shocks we have received, suffered, and will probably continue to suffer will have a significant impact,” Lagarde said.
But as energy prices remain high and the war pushes global food prices up, European central banks are in the so-called second round, driven by higher-priced domestic companies and faster wage growth, especially in the services sector. We are more and more wary of inflation.
Lagarde said that if banks raise interest rates again in September, they are likely to rise significantly more than in July. But this week she sent a message that the risk of sustained high inflation outweighs the prospect of slowing economic growth.
The Bank of England, which launched a rate hike in December, is on a “narrow path” between stopping inflation in May, its 40-year high of 9.1%, and fears of rising living costs that will cause the economy. I tried. Stagnation.
“We have been hit by a huge national income shock coming from outside,” Bailey said. The full-scale and impact of the impact was unknown, he added.
But with wages rising faster than usual in the UK and signs of more goods and services recording above-average price increases, the Bank of England opens the door to a more aggressive policy response. opened. “We will act strongly if inflation becomes more sustainable, that is, if we see the impact of the second round,” Bailey said Wednesday.
