ECB’s Lagarde Warns Against Complacency on ‘Unacceptably High’ Inflation

25 February 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde warned on Saturday against complacency in the wake of good news about the Eurozone economy.

In an interview with Finnish daily Helsingin Sanomat, Lagarde said that headline inflation was still far too high, even if headline numbers were likely to fall.

‘The euro area economy is in a much better position now than it was last year’, she said, though ‘we shouldn’t be complacent. Neither on the energy front nor on the inflation front.’  

‘Headline inflation is still unacceptably high, but it is likely to decline because energy costs are falling’, she said. Core inflation was ‘currently still at its highest level ever’.

She didn’t provide any concrete indication of the future path of monetary policy, repeating previous guidance that ‘[o]ur decisions will be determined by the incoming data and driven by our goal of returning inflation to 2%.’

The ECB President said she was ‘not going to predict what monetary policy decisions will be.’ The March projections would be key to deciding the future path for monetary policy: ‘I’ll wait until our economists project new numbers and we will then analyse very carefully the data that we are given, and we will apply judgement also considering the new data.’

‘We have to be confident that inflation returns to 2%’, she said. ‘And this has to be sufficiently sustained for us to be confident that we have reached our goal.’

She warned that ‘There is clearly a risk of monetary and fiscal policies working at cross purposes’ in the euro area, with monetary policy perhaps having to tighten further due to expansionary fiscal support.

Asked if she had any regrets over the past few years at the ECB, she said ‘we should have maybe identified some inflation movements a little earlier, and not have assumed that there were too many transitory aspects to it.’

She was sceptical, however, about the impact of an earlier ECB response to inflation: ‘I’m not sure if starting rate hikes three months earlier would have made a major difference’, she said, adding, ‘What matters now is that we consistently stay the course.’