FRANKFURT: Inflation is unlikely to return to the anaemic levels seen before recent energy-fuelled price spikes even after the effects of the Ukraine war have worn off, ECB chief Christine Lagarde said on Thursday.
Rather, consumer price growth is “increasingly likely to stabilise at our two-percent target over the medium term”, she said, referring to a period understood as beyond three years.
Spelling the end of the weak inflation plaguing the eurozone over the last decade, Lagarde said monetary policy today “is facing a new challenge”.
“We are increasingly confident that inflation dynamics over the medium term will not return to the pattern we saw before the pandemic,” she said.
At the same time, “we need to manage a shock that, in the short term, pushes inflation above our target and reduces growth”.
Fed hikes rates, signals aggressive turn against inflation
The ECB has thrown billions worth of stimulus measures at the problem of stubbornly low inflation that had beset the eurozone over the last decade.
The efforts have kept the economy in the black, but with the coronavirus pandemic drastically disrupting supply chains, the eurozone has lately seen record consumer price leaps.
Russia’s invasion of Ukraine, which began on February 24, has further piled on the price pressure, and the ECB now sees inflation reaching 5.1 percent for the year.
Lagarde said the stronger price trend ahead has prompted ECB governors to stay on the path of dialling back the stimulus that had been designed to fight disinflationary risks.
Nevertheless, she said the ECB will remain flexible and “ready to revisit our plan if the incoming data require us to do so”.
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