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Lagarde says inflation way too high, ECB to stay the course
Inflation

Lagarde says inflation way too high, ECB to stay the course

2 min. 19.01.2023
Despite improvement in economic outlook, measures still needed to bring price rises under control, ECB chief warns
Christine Lagarde, the president of the European Central Bank
Christine Lagarde, the president of the European Central Bank
Photo credit: Frank Rumpenhorst/dpa

European Central Bank President Christine Lagarde has said inflation remains far too elevated, vowing that policymakers won’t let up in their efforts to return price growth to the target.

“Inflation by all accounts, whichever way you look at it, is way too high,” Lagarde told a panel on Thursday in Davos. “We shall stay the course until such time we have moved into restrictive territory for long enough so that we can return inflation to 2% in a timely manner.”

As eurozone price gains finally ease and natural-gas costs plunge, several policymakers are considering whether a smaller rate increase may be appropriate following February’s expected half-point step, according to people with knowledge of their thinking. 

But with underlying inflation hitting a fresh record in December and the economy holding up better than anticipated after Russia’s attack on Ukraine, many officials remain keen to forge ahead with rate hikes to ensure the steepest price spike of the euro era is vanquished.

Governing Council members Francois Villeroy de Galhau and Klaas Knot both reiterated in Davos that Lagarde’s remarks last month on the need for half-point rate moves in the near term remain valid today.

Lagarde said on December 15: “So we will continue that at a steady pace. Based on the information that we have available today, that predicates another 50-basis-point rate hike at our next meeting, and possibly at the one after that, and possibly thereafter, but everything will also be determined by the review of data. So don’t assume that it’s a one-shot 50; it’s more than that.”

“Most of the ground that we have to cover we will cover at a constant pace of multiple 50 basis-point hikes,” Knot told CNBC earlier on Thursday, warning that investors may be underestimating officials’ commitment. “It will not stop after a single 50 basis-point hike - that’s for sure.”

A “large number” of officials initially preferred a 75 basis-point move at the ECB’s last decision in December, rather than the half-point step they eventually settled on, according to an account of the meeting published on Thursday. 

The account described heightened concerns over underlying price pressures and “an increased risk of inflation becoming entrenched.”

On the eurozone economy, Lagarde said a “small contraction” is now likelier than a recession.

“The news has become much more positive in the last few weeks,” she said. “It’s not a brilliant year but it’s a lot better than we have feared.”

Despite the rosier outlook, Deutsche Bank AG Chief Executive Officer Christian Sewing also said inflation must be tackled, seeing no danger of the ECB tightening policy too much.

“While I agree to all the comments that there is more optimism in the economy, the underlying problems which we have in Europe - high inflation also certain other structural reforms - are not gone,” he told the same panel. “We also need to watch what kind of impact the opening of China has on our inflation.”

Soaring prices remain a concern for Dutch Prime Minister Mark Rutte, too.

“My worry is more on the previous subject, and that is inflation in combination with low longer term growth prospects for Europe,” he told the discussion.

(Additional reporting from Craig Stirling, Steven Arons, Jorge Valero and Jasmina Kuzmanovic)

©2023 Bloomberg L.P.


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