European Central Bank President Christine Lagarde holds a press conference at the informal meeting of European Union ministers for economic and financial affairs on 11 September 2020 in Berlin, Germany.
Hayoung Jeon – pool | Getty Images
LONDON – Christine Lagarde, president of the European Central Bank, has said the bank will not react to inflation on Thursday as prices rise in the eurozone.
The ECB has struggled over the past few years to reach its inflation target of almost 2%, exacerbated by the coronavirus pandemic. Recent data, however, have shown an increase in prices.
Headline inflation figures released in January showed year-on-year 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% year-on-year in January from 0.2% in December.
“We are not going to be focused on blips, not on sustainable movements, and I think we need to warn ourselves together about the fact that we will see inflation rise in the course of (20) 21,” Lagarde said on Thursday told European lawmakers. .
“We can not confuse the forest for the tree. A short-term inflationary movement related to temporary factors of a short-lived nature may not cause any specific move, on the contrary. So we are not playing catch-up at all. Actually trying to ‘the returns prevent the economic developments from progressing,’ Lagarde also said.
The recent price increases in the eurozone have been linked to 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 phase out over time.
“Although we believe that 2021 will be the year of recovery, we only see it happen in the second half of (20) 21, and we believe that any yield increase that will work a little will be undesirable.”
Lagarde said at a press conference last week that the ECB expects inflation to be volatile in the coming months, but that it is likely to be curbed over time. The ECB estimates an inflation rate of 1.5% for 2021 and 1.2% in 2022.
Buy more bonds
After its most recent policy meeting last week, the central bank said its bond purchases would increase “significantly” in the next quarter.
Borrowing costs have been rising in the region since February. This could mean more spending on debt services for eurozone governments, which could lead to an economic recovery.
Lagarde said on Thursday that it could take a while before this boost in purchases will materialize.
“Although the records of our weekly purchases are still distorted by short-term noisy factors, such as sometimes apostate redemptions, the increase in the rate of our program will become visible if determined over longer time intervals,” she told European lawmakers.
The ECB’s Pandemic Emergency Purchase Program, or PEPP, has been in existence for a year now and is expected to last another 12 months, totaling 1.85 billion euros ($ 2.21 billion).