The president of the European Central Bank (ECB), Christine Lagarde, has warned that inflation in the eurozone could register a slight increase in the coming months. This is how the phrase that the Frenchwoman has repeated several times in recent weeks is better understood: “It is too early to declare victory against inflation.” In a hearing this Monday before the economic committee of the European Parliament, Lagarde acknowledged that “general inflation could increase slightly again in the coming months”, partly due to purely statistical effects.
The message, in any case, is that the central bank will remain “patient” and “vigilant” when examining the evolution of price growth. Lagarde particularly highlighted the persistence of food inflation, an effect that appears to have been reduced in the United States.
An interesting detail of the ECB's analysis is that among the different components of inflationary tensions, the rise in wages now has more weight than business profits. So the argument – which has fueled numerous political battles – that companies were most responsible for the rise in prices by taking advantage of the situation to inflate their profits seems to have fallen in recent months.
MEPs have questioned Lagarde that her restrictive monetary policy has harmed many households, who have had to update their mortgage loans. The French president has replied that inflation causes loss of purchasing power and that controlling it is the key objective of the ECB.
Likewise, she recalled that with higher interest rates, citizens will begin to benefit from an increase in the remuneration on their deposits, something that Lagarde hopes will occur more decisively in the economies of the eurozone.
The president of the ECB has taken advantage of her appearance to ask both governments and the European Parliament to agree “as soon as possible” on the new fiscal rules to prevent the year 2024 from starting without a new budget framework. “This would help us remove uncertainty and vagueness from the parameters by which member states currently decide their budgets,” she said.
Discussions on the new criteria require that states in the medium term carry out a “sustained” debt adjustment, while promoting growth and investment, have a system of applicable sanctions and that the rules are simpler to understand. and to implement.
“I am skeptical about the simplicity aspect of what is being negotiated,” Lagarde admitted. In his opinion, the latest documents being negotiated will not require the knowledge of a “brain surgeon” to understand the rules, but rather a “deep knowledge” of them.
One of the objectives of the meeting was to discuss the extent to which climate change affects monetary policy. Lagarde has stated that this aspect has an indirect influence and pointed out that there are several ECB studies that predict that climate change will have an inflationary impact on the economy in the short term. Something not very significant, but which could last, due to the energy transition phase and adaptation to the new model, between three and five years, and then have a more deflationary impact once the cost of energy falls. .
