ECB’s Elderson: Need Higher Interest Rates to Keep Demand from Supporting Inflation

28 September 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Frank Elderson on Thursday said that higher interest rates were needed to prevent demand from boosting prices yet further and to anchor inflation expectations.

Speaking at a European Parliament conference, Elderson said that inflation was ‘currently far too high’ and had turned out to be ‘much stronger and more persistent than we previously anticipated.’

‘This implies that inflation is likely to stay above our 2% target for an extended period’, which is why the ECB picked up the pace of policy normalisation, he said.

The ECB will decide policy meeting by meeting, he said. Citing ECB President Christine Lagarde, Elderson said that it was clear what direction monetary policy was headed in and that interest rates would be hiked further.

‘This will avoid that our monetary policy puts upward pressure on prices by sustaining demand when supply is constrained’, he said. ‘It will also guard against the risk of a persistent upward shift in inflation expectations.’

However, he reminded, given the nature of price pressures, fiscal policy would ideally support sustainable growth so as to dampen mid- to long-term inflation.