ECB’s Lagarde: Not Ready to Say Yet That Inflation Has Been Defeated; Must Be Prudent

31 October 2024

By David Barwick – FRANKFURT (Econostream) - European Central Bank President Christine Lagarde on Thursday declined to declare victory over inflation, saying that inflation would increase again in the short term and that caution was still warranted.

In an interview with French daily Le Monde, Lagarde said, ‘The target is in sight but I’m not going to tell you that inflation is defeated yet.’

Monetary authorities were ‘pleased’ about September’s 1.7% reading, but base effects would boost the numbers of the coming months, she said.

‘Besides, inflation in the services sector – which is highly dependent on wages – is still at 3.9%’, she said. ‘So, prudence is warranted.’

Barring a ‘major shock’, the ECB would durably restore price stability ‘during the course of 2025’, she said.

Monetary policy going forward would be set according to incoming data with an eye toward inflation prospects, underlying inflation and policy transmission, she said.

The ECB did not currently envisage a recession in Europe over the next two years, she said. Exports and domestic demand would drive growth, and though higher disposable income was currently mainly being saved, ‘we are convinced, and economic history shows us, that this additional disposable income will ultimately flow towards consumption’, she said.

Askedin the context of the increase in the spread between French and German sovereign debt whether the ECB was prepared to deploy its transmission protection instrument, Lagarde said merely that the ECB had defined the necessary circumstances for such deployment. ‘And that is not an issue today’, she added.