European Central Bank President Christine Lagarde will hold a press conference during the informal meeting of the European Union’s Economic and Financial Affairs Ministers on September 11, 2020 in Berlin, Germany.
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LONDON – European Central Bank president Christine Lagarde said the bank will not respond to inflation “blips” on Thursday as euro area prices soar.
The ECB has struggled in recent years to meet its inflation target of close to, but below 2%, exacerbated by the coronavirus pandemic. However, recent data shows a price increase.
General inflation data released in January showed an annual inflation rate of 0.9%, the highest level in almost 12 months. In addition, core inflation, which removes volatile elements such as energy and food prices, reached 1.4% yoy in January from 0.2% in December.
“We are not going to be focused on blips, not sustainable moves and I think we should warn ourselves together that we will see inflation rates rise over the course of (20) 21,” Lagarde told European lawmakers on Thursday. .
“We cannot confuse the forest with the tree. A short-term inflation movement related to transient temporary factors should not initiate any movement, on the contrary. So we are not playing any catch-up. stay ahead of economic developments, ”said Lagarde.
The recent price increases in the eurozone are linked to new tax rules in Germany and a new CO2 tax, in addition to higher energy prices. The impact of the first two is expected to diminish over time.
“While we think 2021 will be the year of the recovery, we don’t see it happening until the second half of (20) 21, and we believe that any yield increase that would act like a drag would be undesirable. “
At a press conference last week, Lagarde said the ECB expects inflation to be volatile in the coming months, but is likely to be limited in time. The ECB estimates an inflation rate of 1.5% in 2021 and 1.2% in 2022.
Buy more bonds
After its last policy meeting last week, the central bank said its bond purchases will “increase significantly” in the next quarter.
Financing costs in the region have been increasing since February. This could mean that eurozone governments have to spend more on debt servicing, which could derail an economic recovery.
On Thursday, Lagarde said it may take a while for this boost in purchases to materialize.
“While our weekly purchase records will be skewed by noisy short-term factors, such as occasional hefty redemptions, the increase in our program’s run rate will become apparent when measured over longer time intervals,” she said. European legislators.
The ECB’s Pandemic Emergency Purchase Program, or PEPP, has been in effect for a year now and is expected to run for another 12 months, for a total cost of EUR 1.85 trillion ($ 2.21 trillion).