‘Significantly’ Too High Core Inflation Means ECB Still Has ‘Ground to Cover’: Lagarde
31 March 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – Core inflation is still significantly too high in the euro area, which means that the European Central Bank still has ground to cover, its President Christine Lagarde said on Friday.
Speaking at an event at Osservatorio Permanente Giovani–Editori in Florence, Italy, Lagarde said that the situations of Credit Suisse and Deutsche Bank were not comparable.
Core inflation ‘is still significantly too high’, she said. Noting core inflation had risen to 5.7% in Italy, she said the ECB knew that it had ‘ground to cover’.
‘But we also know that there is a lot of uncertainty because of […] geopolitical changes, the financial tensions that we have observed on the markets recently… all that creates this sort of fog around our numbers and we really need to apply all our economic brain power’ when it comes to monetary policy decisions, she said.
Asked about recent turmoil in the European banking sector, and in particular the situation of Deutsche Bank, which the ECB supervises, she said she would ‘certainly not put in the same category Credit Suisse and Deutsche Bank.’
The two banks were a ‘completely different story, [with] completely different fundamentals, and I would not associate them in any shape or form’, she said.
She repeated that ‘I said very clearly at the press conference, the last one that I did, and in [the European] Parliament as well, that I saw no trade-off between price stability, on the one hand, which is the goal that we pursue, and financial stability, which is a fundamental condition for price stability to be delivered.’
‘They are separate and yet they support each other’, she said. ‘At the ECB […] we have a toolbox and we have tools to deal with price stability – at the moment predominantly interest rates, but not only – because we want to make sure that our monetary policy is transmitted throughout the entire system smoothly and we will use those tools if monetary policy is not transmitted smoothly.’
She said the ECB had ‘abundant liquidity and we have access to liquidity which is very large, which – if I were to compare with the Fed for instance in the United States – is much broader actually in terms of collaterals for instance than the Fed.’
The central bank had ‘one big toolbox, two categories of tools, masses of liquidity made available’ to tackle financial instability, she said. For price stability, its tools were ‘interest rates predominantly’ but the ECB stood ready to address any issues that may arise, she said, adding that ‘transmission of monetary policy will not be impaired, voilà.’