All eyes are on Frankfurt today. The European Central Bank (ECB) will meet to decide on interest rates. What will Christine Lagarde do? On the one hand, price growth in the euro zone continues to slow down. After reaching its historic record last October, with an increase that stood at 10.6%, inflation in January reached 8.5%. Although it is still a historically high level, the trend, in any case, is to slow down.
But on the flip side, so-called core inflation, which does not include volatile food and energy costs, held steady at 5.2% last month. It's hard for him to go down. “This reinforces the feeling among consumers that 'everything is getting more expensive',” commented Ulrike Kastens, Economist Europe for DWS.
There is another fact to take into account. For now, the Old Continent has dodged the recession (thanks also to the mild weather in the first part of the year that has kept energy bills in homes and businesses at bay). And, more importantly, unemployment held steady at 6.6% in December, the lowest rate ever recorded.
This relative strength should be reason enough for the ECB to continue with a more restrictive monetary policy without fear of excessively damaging the real economy.
"In order for inflation to fully normalize and return to the 2% price stability objective set by the ECB, it is likely that a certain cooling of the economy and the labor market will be necessary," warn the manager PIMCO. This gives room (in theory) to the European Central Bank to fearlessly raise rates. The analyst consensus points to 0.50%, but there may be surprises.
The ECB's quandary comes after the Federal Reserve approved a 0.25% interest rate hike yesterday at the end of its two-day meeting, signaling that the hike will continue into next month as it continues to fight inflation.
This decision comes after another six consecutive rises, with four of 0.75%, which has put the price of money, from zero or almost, in the range between 4.25 and 4.50%. In doing so, he set the Fed's fastest rate hike pace since the early 1980s, four decades ago.
Those responsible for the US central bank, who voted unanimously for this new increase, underlined the progress made to stop the rise in prices and their decline, as seen in the latest data, which left it at 6.5% after having climbed to 9, 1% last June.
It is striking that the Fed is being very aggressive against inflation despite the fact that it is much lower than the euro area. The energy crisis has made the falling cost of living in continental Europe and the UK more painful than in the US, sparking protests and strikes by workers in several countries demanding wages in line with inflation.
In any case, Federal Reserve Chairman Jerome Powell looks set to get on with it. "The committee anticipates new increases, appropriately, to reach a sufficiently restrictive monetary policy stance," he stressed in his statement, with language similar to that applied by the Fed since March, when they got down to work after despising the underlying problem of inflation.
Powell remarked in the subsequent press conference that the institution will do everything in its power and that they will not cease their efforts until the healthy framework of 2% recession is reached. So "it would be premature to declare victory," he insisted.
“The job is not done yet, we don't see disinflation yet. It has not happened, ”she stressed. And he cited inflationary problems in the real estate sector as an indicator that that point has not been reached. “It is not a question of being optimistic or pessimistic, but of seeing disinflation soon begin in the price of items and in real estate,” she concluded.
