European Central Bank President Christine Lagarde is holding a press conference at the informal meeting of European Union ministers for economic and financial affairs on 11 September 2020 in Berlin, Germany.
Hayoung Jeon – Billiards | Getty Images
LONDON – European Central Bank President Christine Lagarde said the bank would not respond to “blips” inflation on Thursday as prices rose in the eurozone.
The ECB has struggled to reach its inflation target close to but below 2% in recent years, which has been exacerbated by the coronavirus pandemic. However, recent data have shown an increase in prices.
The main inflation figures published in January showed inflation at 0.9% compared to the previous year, the highest level in almost 12 months. In addition, core inflation, which eliminates volatile items such as energy and food prices, reached 1.4% year-on-year in January from 0.2% in December.
“We will not be focused on blips, on movements that are not sustainable and I think we need to warn together that we will see the number of inflation rise during (20) 21,” Lagarde told MEPs on Thursday.
“We cannot confuse the forest with the tree. A short-term inflationary move, which is linked to temporary factors of a transitory nature, should not precipitate any special move, but on the contrary. So we are not lagging behind at all. In fact , is trying to prevent yields from taking a step ahead of economic developments, “Lagarde said.
Recent price increases in the euro area have been linked to the new tax rules in Germany, as well as a new carbon tax, in addition to higher energy prices. The impact of the first two is expected to gradually disappear over time.
“Although we believe that 2021 will be the year of recovery, we do not see that it will happen until the second half of (20) 21 and we believe that any increase in efficiency that would work little as a brake would be undesirable. “
At a news conference last week, Lagarde said the ECB expects inflation to be volatile in the coming months, but is likely to be limited in time. The ECB estimates an inflation rate of 1.5% for 2021 and 1.2% in 2022.
More bond buying
After the most recent political meeting last week, the central bank said its bond purchases would increase “significantly” in the next quarter.
Borrowing costs have risen in the region since February. This could mean more debt service spending for eurozone governments, which could derail an economic recovery.
Speaking on Thursday, Lagarde said it could take some time for this acquisition momentum to materialize.
“While the records of our weekly purchases will continue to be distorted by noisy short-term factors, such as occasional redemptions, while the running of our program will become visible when found over longer intervals,” she said. European parliamentarians.
The ECB’s Emergency Procurement Program, or PEPP, has been in force for one year and is set to run for another 12 months, totaling up to € 1.85 trillion ($ 2.21 trillion).