NICOSIA: Food and energy prices in the euro zone should stop rising, which should help the euro zone avoid a combination of stagnant growth and high inflation feared by economists, European Central Bank President Christine Lagarde said on Wednesday.
Inflation in Spain hit 9.8% this month and it expected to have run above 7% in the bloc’s largest economy Germany, setting up the euro zone for another record high when bloc-wide data is published on Friday.
Lagarde said the inflation outlook was “fluid” as an ongoing war in Ukraine forced economists to constantly revise their economic forecasts.
But she expected energy and food prices, which have scaled new highs since Russia’s invasion, to stabilise, albeit at high levels.
“We know you will see higher inflation this year, there is no question about that,” Lagarde said. “But we are also seeing some of those factors that fuel inflation today, energy and food, that will stay high.
But we don’t forecast them - not predict - to continue to move higher and higher.“
She acknowledged the euro zone was facing slower growth and higher inflation but still thought it could avoid “stagflation”, which she defined as “a recession of the economy on a sustainable basis and inflation high and continuing to rise”.
The ECB is winding back years of ultra-aggressive stimulus in the face of surprisingly high inflation but it has yet to raise interest rates - unlike many of its peers including the US Federal Reserve and the Bank of England.
The euro zone’s central bank said its bond-buying programme, designed to pump cash into the financial system, would end in the summer and would be followed by its first rate hike more than a decade some time after that.