European Central Bank President Christine Lagarde gives a press conference during the informal meeting of European Union ministers for economic and financial affairs on September 11, 2020 in Berlin, Germany.
Hayoung Jeon – Swimming pool | Getty Images
LONDON – European Central Bank President Christine Lagarde said the bank will not respond to inflation “spikes” on Thursday, with rising prices in the eurozone.
The ECB has struggled to reach its inflation target of almost, but below, 2% in recent years, which has been exacerbated by the coronavirus pandemic. However, recent data shows a rise in prices.
The full inflation figures released in January showed an annual inflation of 0.9%, the highest level in almost 12 months. In addition, core inflation, which removes volatile items such as energy and food prices, reached 1.4% in January, compared to 0.2% in December.
“We are not going to focus on blips, on unsustainable movements and I think we need to warn ourselves together about the fact that we will see inflation numbers rise over the course of (20) 21,” Lagarde told European lawmakers on Thursday. .
“We cannot confuse the forest with the tree. A short-term inflationary movement that is related to temporary factors of a transitory nature should not precipitate any particular movement, quite the contrary. Therefore, we are not playing catch up. they are, in fact, trying to prevent incomes from being ahead of economic developments, “said Lagarde.
Recent price increases in the eurozone are associated with new tax rules in Germany, as well as a new carbon tax, in addition to higher energy prices. The impact of the first two is expected to gradually diminish over time.
“Although we believe that 2021 will be the year of recovery, we do not see this happening until the second half of (20) 21, and we believe that any increase in yield that works a bit like a brake would be undesirable. “
Speaking at a news conference last week, Lagarde said that the ECB expects inflation to be volatile in the coming months, but that it is likely to be limited in time. The ECB estimates an inflation rate of 1.5% for 2021 and 1.2% in 2022.
More title purchase
After its last policy meeting last week, the central bank said its bond purchases will “significantly” increase in the next quarter.
Borrowing costs have been rising in the region since February. This could mean more spending on debt servicing by eurozone governments, which could hamper the economic recovery.
Speaking Thursday, Lagarde said it could take some time for this boost in purchases to materialize.
“While the records of our weekly purchases continue to be distorted by noisy short-term factors, such as occasionally irregular redemptions, the increase in the rate of execution of our program will become visible when verified over longer time intervals,” she said. .
The ECB’s Pandemic Emergency Purchase Program, or PEPP, has been in place for a year and is expected to last another 12 months, totaling 1.85 trillion euros ($ 2.21 trillion).