FRANKFURT: Inflation is likely to remain high in the near future, European Central Bank (ECB) president Christine Lagarde told the Japanese newspaper Yomiuri Shimbun, adding that second-round effects so far are no worse than anticipated.
“We know that inflation numbers will remain high in the quarters to come,” Lagarde said in an interview published last Saturday. “The higher they are, and the longer they remain high, the greater the risk to our medium-term target.”
While core inflation in October was unchanged for the month at a relatively low 2.5%, the ECB will be looking at the detailed breakdown to determine what its next moves on interest rates will be next month, she said.
Lagarde added that for the moment, the central bank isn’t seeing second-round inflation effects “beyond what we have incorporated in our projections”.
“We’re watching carefully the forward-looking indicators – multi-year wage agreements, companies’ wage expectations – and we don’t see evidence of a shift yet,” she said.
With euro area headline inflation running at double the ECB’s 2% target and the economy continuing to grow solidly, several policymakers have signalled a likely further quarter-point hike in interest rates next month, following two such steps since the Iran war sent energy costs soaring.
A key question, however, is how much tightening the 21-nation currency bloc can endure without damaging economic growth.
Another rate increase would push borrowing costs to the top of a range within which their economic effect is deemed benign.
The recent jump in global bond yields poses another headwind.
“I cannot tell you today that we will for sure do this in December,” Lagarde told the newspaper.
“What I know is that, on the basis of the information we have today, it would take significant changes for the direction of travel to be different from what I expect.”
Lagarde, 70, announced last month that she’ll step down in February, about nine months early. Dutchman Klaas Knot and Spaniard Pablo Hernandez de Cos are vying to replace her, the Eurogroup president said last Friday.
Asked whether she planned on becoming a candidate for 2027 French presidential elections, Lagarde said: “It’s not my plan. It’s not my future. But I want to be able to speak up in that debate.
“When I hear one of the candidates who is relatively high in the polls say that sovereign debt should be burnt, I can’t just stay completely quiet and I want to be able to speak up, on the facts, the data, the truth, not silently listen to invented propaganda,” she said.
The premium investors demand to hold French 10-year debt over safer German peers has dipped back below 150 basis points (bps) after soaring to 178 bps last month, which was the highest in more than a decade.
The auction coincides with more strikes called by public and private sector unions as well as demonstrations over the cost of living in France. — Bloomberg
