Bottlenecks hurt euro zone growth, fuel inflation: ECB’s Lagarde

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FRANKFURT (Businesshala) – European Central Bank President Christine Lagarde said on Monday that persistent supply chain bottlenecks and rising energy costs are slowing euro area growth and will keep inflation in check for even longer.

FILE PHOTO: The European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany on March 7, 2018. Businesshala/Ralph Orlowski/File photo

The ECB has counted on a sharp fall in inflation next year, but policymakers are now openly admitting that their forecasts, which have already been revised several times, are still too low, as the global economy slows down. Stress takes a toll.

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But Lagarde continued to push for tighter policy calls and market bets, reiterating the ECB’s message that it is unlikely to meet the conditions of higher interest rates next year as inflation is still below the bank’s 2% target. Looking back.

“Materials, equipment and labor shortages are impacting manufacturing output, weakening the near-term outlook,” he told a hearing of the European Parliament’s Committee on Economic Affairs.

Inflation hit 4.1% last month and could reach a level of 4.5% by the end of the year, before a slow decline that will only put it back under the ECB’s target by the end of 2022, economists predict.

Lagarde said bottlenecks are likely to ease next year and energy futures also point to a noticeable decline next year, suggesting inflation will decline even if prices take longer to normalize.

“We still see inflation moderating next year, but it will take longer to come down to less than originally expected,” Lagarde said.

The ECB forecast annual inflation of less than 2% next year, a figure that is probably as old as private estimates, with estimates from the European Commission, all pointing to price increases of more than 2%.

Lagarde said wages could also respond to this inflation but reiterated that the ECB still has not seen price increases through the so-called second round of effects.

“We see that wage growth next year is potentially going to be slightly higher than this year, but the risk of second round impacts remains limited,” she said.

This story corrects the title to make fuel inflation the obvious constraint.

Reporting by Balazs Koranyi; Editing by Francesco Canepa and Clarence Fernandez


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