The President of the European Central Bank, Christine Lagarde, believes that inflation is not close to having reached its peak.
I would like to see inflation, measured at 10.6% in October in the euro area, having peaked in October, but “I wouldn’t go as far as that”, said Ms Lagarde on Monday 28 November before the European Parliament’s Committee on Economic and Monetary Affairs, in response to a question by Pedro Silva Pereira (S&D, Portuguese). In her view, as long as the price increase observed in the wholesale energy markets has not been passed to the retail markets, this will not be the case. Ms Lagarde noted that ECB economists point to upside risks to inflation.
Faced with this situation, the monetary institute is determined to act in order to fulfil its mission of guaranteeing price stability at a level of 2% in the medium term, with interest rates being the primary tool at its disposal.
The former head of the IMF therefore reiterated that the ECB would continue to raise interest rates. At December’s Governing Council meeting, any decision on the size of the next increase would be based on the latest available data, she asserted, warning that this could ultimately lead to “restrictive territory”.
In December, the Frankfurt institute will also decide on the key principles that will guide it in reducing the stock of securities acquired through its massive securities buyback operations. “It is appropriate that the balance sheet is normalised over time in a measured and predictable way”, said Ms Lagarde.
Asked by Stéphanie Yon-Courtin (Renew Europe, French) about the difference in inflation rates within the euro area, with France having the lowest rate (7.1%) and Estonia (22.5%) the highest in October, Mrs Lagarde explained this phenomenon as follows: - the share of energy and food products in overall consumption is higher in Estonia; - the proximity to Ukraine is an additional risk; - Estonia is reported to have taken fewer measures to protect those people and businesses most affected by soaring energy prices.
The ECB President also reiterated her call for Member States to adopt “targeted, tailored and temporary” fiscal measures to not add to inflationary pressures and to relieve people and businesses from rising prices, while, in her view, more than 70% of the national measures taken remain cross-cutting.
Finally, on the European Commission’s controversial proposal to cap gas prices (see EUROPE 13070/1), Ms Lagarde said that the ECB would give an opinion on the proposal on the table, but only on those provisions where it would play a role in preserving financial stability, with the EU Council retaining responsibility for political considerations. (Original version in French by Mathieu Bion)