ECB’s Lagarde: Negative HICP Coming Months Partly Due to Strong Euro

28 September, 2020



By David Barwick – FRANKFURT (EconoStream) – European Central Bank President Christine Lagarde on Monday assigned some of the blame for a negative near-term inflation outlook to the appreciation of the euro.

In her prepared introductory statement before the Committee on Economic and Monetary Affairs of the European Parliament, Lagarde sounded somewhat less upbeat about economic prospects and in general offered no reason to think that she would be unwilling to support those on the Governing Council clamouring for additional monetary accommodation.

Noting the weakening of price pressures that saw euro area annual HICP sink to a four-year low of -0.2% in August, she said inflation would probably stay negative for some months, ‘reflecting the effects of earlier declines in energy prices, a stronger euro, and a temporary reduction in the value-added tax rate in Germany.’

Little was positive about her overall assessment of the economic situation. ‘Businesses are facing difficulties, people are losing their jobs, and prospects about the future remain uncertain’, she said.

Whereas she had spoken of a ‘strong rebound’ of output following the September 10 monetary policy meeting of the Governing Council and again in a speech as recently as September 21, today she merely noted that ‘euro area economic activity rebounded in the third quarter’.

Lagarde qualified her acknowledgments of economic recovery. Though consumers are spending, they are worried about their jobs and income; though businesses are investing, they are hesitating because of weaker demand and high uncertainty, she said.

Reiterating the ECB staff macroeconomic projections for growth, she said the actual outcome hinges on how well the pandemic is contained. ‘The public health crisis will continue to weigh on economic activity and poses downside risks to the economic outlook’, she said.

Touching on the possibility of further ECB action, she relied on wording identical or nearly identical to her various recent interventions: “In the current environment of elevated uncertainty, the Governing Council will carefully assess all incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook. It continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.”