Even after the next policy meeting in March, the European Central Bank (ECB) has not yet finished raising interest rates. Central Bank President Christine Lagarde said this during a commentary on Wednesday’s interest rate hike. “We are not yet at the peak and still have a lot to do.”
While inflation is declining, it’s mainly due to falling energy prices, Lagarde explained. However, the high prices for heat and electricity in recent months are still filtering through to inflation, for example, due to increased prices for food. In addition, the rise in wages, which will be partly passed on by employers in the prices of their products, will also pressure inflation shortly.
The ECB policymakers, which this time included the president of the central bank of Croatia for the first time, are keeping a close eye on core inflation. And according to the first estimates, it is not yet falling, according to Lagarde. That is why the ECB sees enough reason to announce the intention of a new rate hike at the next meeting in March.
“We look at the data we have, and now we have enough visibility to look a little further ahead,” Lagarde explained. In March, policymakers will look further ahead, said the Frenchwoman. “We want our policy to be logical and unambiguous.” Lagarde wants to achieve this by “raising interest rates enough to slow down the economy” and by staying “at that level long enough” to bring inflation back to 2 percent in the medium term.
The ECB president also wants governments to look closely at support measures due to the high energy prices. However, these are often still too broad, and because of energy prices, there are opportunities to adjust them, according to the central bank.
But with everything, there is still a lot of ambiguity and uncertainty. For example, energy prices can rise sharply again but can also fall quickly. The reopening of the Chinese economy could lead to more demand for raw materials, such as oil and gas, which will pressure prices. But the problems in the supply chain can also be solved, as well as shortages of certain materials, which can lead to lower prices.
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