ECB’s Lagarde: ‘Inflation May Turn Out to Be Higher Than We Projected in December’

11 February 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s next set of macroeconomic forecasts may project higher rates of inflation than the last set, ECB President Christine Lagarde indicated on Friday.

In an interview with German media group newsroom Redaktionsnetzwerk Deutschland, Lagarde said, ‘We currently see inflation figures increasing and we are taking that into account in our projections. Inflation may turn out to be higher than we projected in December. We will analyse that in March and then take it from there.’

Asked whether the ECB’s attitude continued to be wait-and-see, she replied, ‘‘No, we have already begun to take measures.’ The end of net asset purchases ‘is a precondition for increasing interest rates at a later point in time’, she said.

Still, raising interest rates ‘would not solve any of the current problems’, she argued. ‘On the contrary: if we acted too hastily now, the recovery of our economies could be considerably weaker and jobs would be jeopardised. That wouldn’t help anybody.’

Monetary authorities ‘have to ask ourselves when is the right time’ to act, she said. ‘We have to consider that the full impact of any decision we make is generally not felt until nine to 18 months later.’

The ECB cannot resolve supply constraints or reduce energy prices, she said. All its policy moves must be gradual. The euro area is ‘far from being’ overheated, she said. ‘That’s why we can – and must – proceed more cautiously. We don’t want to choke off the recovery.’

‘Now we can adjust – calmly, step by step – our monetary policy instruments’, she said. ‘And when the economic data allow it, we will do it.’

In any case, ‘it is highly unlikely’ that the pace of oil price increases will continue unabated, she said. ‘So even if only for that reason, inflation will slow down.’ Though it would remain elevated over the next months, ‘I am confident that it will fall back in the course of the year’, she said.

In other comments, Lagarde said that ‘[i]n most euro area countries, including Germany, wage demands are very moderate’, and that ‘the greenflation debate is exaggerated.’