CC-BY-4.0: © European Union 2020 – Source: EP”. (creativecommons.org/licenses/by/4.0/)
During a conference at Frankfurt’s Goethe University on Wednesday, European Central Bank (ECB) President Christine Lagarde observed that the Eurozone will never recover the enormous terms-of-trade losses it has endured due to the massive increases in energy prices the bloc has seen over the last year.
According to the ECB head, the loses the bloc has endured will ultimately have to be borne by the zone’s companies and workers.
Lagarde went on the explain, “And it is important that there is fair burden-sharing between them, with both accepting that they cannot fully recover the income that the euro area has paid to the rest of the world and the ensuing loss of output.”
She continued, noting the Eurozone is presently enduring an inflation of prices which is gradually moving through the entire economy, and increasing the cost of living for all the zone’s residents.
She concluded, “While headline inflation is likely to decline steeply this year, driven by falling energy prices and easing supply bottlenecks, underlying inflation dynamics remain strong.”
She went on to observe that the bloc had endured an enormous series of supply shocks which had battered the Eurozone, driven by pandemic-caused disruptions of supply chains, and the energy crisis which emerged as the EU attempted to impose sanctions on Russia over the war in Ukraine.
She went on to note however, that there were bright moments economically, such as the reopening of economies following the end of the Covid-19 pandemic.
She pointed out, “That favorable demand environment allowed firms to pass rising input costs through to prices much faster and more strongly than in the past.”
With respect to future interest rate hikes, she noted that would depend on future data, first and foremost whether there were signs which could convince the regulator that the bloc’s painfully high inflation was heading downward convincingly.
The ECB head said, “With high uncertainty, it is even more important that the rate path is data-dependent,” which means “we are neither committed to raise further nor are we finished with hiking rates.”
She concluded by promising to return price stability to the bloc, and return inflation to the 2 target rate in the medium term, at all costs.
