— HICP expected to top 3% in December
LONDON (MaceNews) – Eurozone interest rates are likely to remain at record lows for the foreseeable future, with the recent rise inflation seen as temporary, according to European Central Bank President Christine Lagarde.
“The key challenge is to ensure that we do not overreact to transitory supply shocks,” said Lagarde, opening the ECB’s annual forum, held virtually this year, rather than in the Portuguese resort town of Sintra.
That despite a surge in price pressures over recent months. Eurozone HICP jumped to a decade-high of 3.0% in August, well ahead of the ECB’s target of 2%. Rising natural gas prices could lift the index by 3.5% in September, according to eurozone economists, with the next inflation reading scheduled for Friday. The central bank “will only react to improvements in headline inflation that we are confident are durable,” Lagarde added.
That puts the ECB at odds with the Bank of England, which has begun preparing investors for a rate hike.
Addressing the UK Society of Professional Economists on Monday, BoE Governor Andrew Bailey noted that even the most dovish members of the Monetary Policy Committee acknowledged the possibility that rates could rise ahead of the expiration of the current quantitative easing programme at year end.
By contrast, the eurozone economy “is hardly out of the woods,” said Lagarde, with unemployment not expect to fall below pre-pandemic levels until the second quarter of 2023, and inflation forecast to fall back below target by next year.
Lagarde did acknowledge that the end of the ECB’s Pandemic Emergency Purchase Programme “is drawing near,” but many economists believe the ECB will expand its €20 billion monthly Asset Purchase Programme once the PEPP expires.