NICOSIA (Reuters) – Eurozone food and energy prices are expected to stabilize, helping the bloc’s economy avoid a combination of weak growth and high inflation, the Eurozone said on Wednesday. President of the European Central Bank (ECB), Christine Lagarde.
Consumer prices in Spain rose 9.8% year-on-year in March, their biggest rise since May 1985, and in Germany they are expected to rise above 7%, pointing to a record high for inflation of the entire euro area.
Christine Lagarde said the outlook for inflation was “changing”, with the war in Ukraine forcing economists to regularly revise their economic forecasts.
Energy and food prices, which have soared since the start of the Russian invasion of Ukraine, are set to stabilize, although at high levels, believes Christine Lagarde.
“We know that we are going to see higher inflation this year, there is no doubt about that,” she told a conference organized by the central bank of Cyprus.
“We also see that some of the factors that are fueling inflation today, energy and food, are going to stay elevated. But we don’t expect – we don’t predict – that they will continue to move higher and higher” added Christine Lagarde.
The President of the ECB acknowledged that the euro zone was facing a slowdown in growth and an acceleration in inflation, but she believes that “stagflation” – which she defines as “a recession of the economy on a sustainable basis and high inflation, which continues to rise” – can be avoided.
Unlike the US Federal Reserve and the Bank of England, the ECB has not yet raised its interest rates but it has nevertheless undertaken to reduce its exceptional support for the economy in the face of rising prices.
It thus announced three weeks ago its intention to end its bond purchases in the third quarter, a prerequisite before any rate hike.
(Reporting Michele Kambas, written by Balazs Koranyi, French version Laetitia Volga, edited by Marc Angrand)