FRANKFURT (Reuters) – Euro zone inflation could rise in coming months, but keeping interest rates from the European Central Bank (ECB) at their current level for long enough could be enough to bring growth back. price at the target of 2%, declared Friday Christine Lagarde, president of the Frankfurt institution.
The ECB ended a series of ten consecutive interest rate hikes last month and investors now expect the central bank to begin the process of lowering rates, perhaps as soon as month of April 2024.
The rapid decline in inflation in the currency bloc, which fell to 2.9% year-on-year in October, reinforced such a scenario on the markets. Christine Lagarde believes, however, that the marked slowdown in inflation could ease soon and that price growth could even accelerate again in the short term, with high energy prices no longer being taken into account in the comparison of a year to year.
“There will be a resurgence with probably higher numbers in the future and we should expect that,” she told an event organized by the Financial Times. “Even if energy prices remained reasonably stable today, we would lose the base effect in January and February,” she explained.
The ECB, which left its deposit rate unchanged at 4.0% last month, forecasts that inflation will return to target at the end of 2025 and that consumer price growth will stagnate around 3% for the majority part of the year 2024.
The ECB’s chief economist, Philip Lane, said earlier this week that he saw inflation falling between “the highs of 2% and the lows of 3%” in 2024.
The President of the ECB, however, suggested that even if inflation were to rise again, a further increase in rates might not be necessary.
“We are at a level where we believe that, if they (rates) are maintained long enough – and this duration is not negligible – they will bring us back to the 2% objective in the medium term,” he said. -she said.
However, the ECB has long believed that a restrictive budgetary policy on the part of member states is also necessary in the fight against inflation and that excessive public spending could force the central bank to tighten its policy further.
Christine Lagarde stressed on Friday that the ECB was not comfortable with the lack of agreement on a new budgetary framework for the countries of the European Union.
(Reporting by Balazs Koranyi, French version Claude Chendjou, editing by Kate Entringer and Blandine Hénault)
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