The observed rise in inflation remains “largely temporary”, so our baseline scenario of price inflation remaining below our 2% target continues to be valid, ECB President Christine Lagarde said on Monday 27 September at a monetary dialogue in the European Parliament.
Mrs Lagarde attributed the current rise to several factors such as rising energy prices or problems with equipment and raw material shortages. She did not rule out the possibility that these shortages would continue during 2022 and that high inflation would trigger wage demands. “But so far we see little sign of this risk materialising”, she said.
At the beginning of September, the Frankfurt Institute revised its inflation projections upwards compared to June, now forecasting a path of 2.2% in 2021, 1.7% in 2022 and 1.5% in 2023 (compared to 1.9%, 1.5% and 1.4%) (see EUROPE 12787/1). In December, it will refine its exit strategy after March 2022 for the massive buyback operation ‘PEPP’, after having moderately slowed down the pace of purchases.
Asked by Michiel Hoogeven (ECR, Netherlands) about the rise in house prices, the former IMF Director acknowledged the need to better integrate this dimension in the long term in the calculation of the inflation path. “Having affordable borrowing costs thanks to the ECB clearly has a positive impact”, she said.
In addition, Mrs Lagarde explained to MEPs the ECB’s revised monetary policy strategy agreed in July and in particular the three cumulative conditions that will lead to a rise in the monetary institute’s key rates (see EUROPE 12767/16). Unlike the US Fed “we do not refer to an average” for inflation, but to “three conditions”, she admitted, in response to a question from Jonás Fernández (S&D, Spain).
Ernest Urtasun (Greens/EFA, Spain) expressed concern that the ECB’s existing climate action was out of step with the urgency described in the results of its recent climate stress test (see EUROPE 12797/16). How long will it be before you abandon this policy of neutrality in the purchase of shares in private companies? he asked.
“We have already come a long way. We are not at the end. We keep to our schedule. We will get results”, Lagarde said.
Basel III. Asked about the transposition of the ‘Basel III’ agreement on banking prudential requirements into EU law, Mrs Lagarde said it was finally time to finalise this project. Stalling for more time or trying to change the rules is “not a factor of stability”, she said. (Original version in French by Mathieu Bion)