Food will soon be more expensive again?
ECB director fears new price shocks
October 6, 2023, 11:54 a.m
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Inflation fell to 4.3 percent in September. But Isabel Schnabel warns against complacency: The battle against new price shocks has not yet been won, says the German ECB director. Energy prices, food and wages pose dangers.
ECB Director Isabel Schnabel warns against prematurely declaring inflation defeated. The recent rise in oil prices shows the central bank that it is not certain that inflation will only weaken in the future, said the member of the six-person management team of the European Central Bank (ECB) in an interview with the Croatian newspaper “Jutarnji List”. There could be new shocks on the supply side, for example from energy or food prices. Wages could also rise more than expected. “That’s why we shouldn’t be complacent and we shouldn’t be too quick to declare victory over inflation,” she said.
The key interest rates are now at a restrictive level, said Schnabel. This is what the central bank world calls an interest rate level that slows down the economy. And according to Schnabel, this will make a significant contribution to a timely return of inflation to the ECB’s target of two percent.
“However, we cannot say whether we have reached the peak or how long interest rates will have to be kept at restrictive levels,” she said. This will depend on the data. Risks would have to be carefully monitored. “If they become a reality, further interest rate increases could be necessary at some point.”
Inflation still twice as high as targeted
The ECB last raised interest rates by another quarter of a percentage point in mid-September. It was the tenth increase in a row. The relevant deposit rate on the financial market, which financial institutions receive from the central bank for parking excess funds, is now 4.00 percent. This is the highest level since the start of the monetary union in 1999.
The ECB’s next interest rate meeting is on October 26th. Inflation had recently weakened significantly. In September it fell by 0.9 percentage points to 4.3 percent compared to August. However, the rate is still more than twice as high as the ECB inflation target.