Underlying Eurozone Inflation Pressures Still Strong, Not Peaked Yet, Lagarde Says

5 June 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde said on Monday that inflation pressures were still elevated in the Eurozone, despite a recent fall of core inflation.

Speaking at a hearing of the Committee on Economic and Monetary Affairs of the European Parliament, Lagarde said that price pressures ‘remain strong’. Upside pressures on headline and core inflation were ‘still coming from the pass-through of past energy cost increases and supply bottlenecks’, she said, but were ‘expected to fade gradually.’

‘The latest available data suggest that indicators of underlying inflationary pressures remain high and, although some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked’, she said.

She noted that domestic demand, especially consumption, remained ‘weak.’ The ECB saw a ‘divergence across sectors of the economy’, with the manufacturing sector’s prospects ‘worsening’ and the services sector remaining ‘resilient’, owing in particular to the reopening of the economy after the pandemic, she said.

The full effects of the ECB’s monetary policy were ‘starting to materialise’, she said. Recent ECB staff analysis indicated ‘that the effects of monetary policy tightening on real activity and inflation can be expected to strengthen in the coming years’, but this assessment was surrounded by significant uncertainty, she said.

She emphasised the ECB’s data-dependent approach, and repeated the recent language that ‘future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium-term target and will be kept at those levels for as long as necessary.’