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European Central Bank: Medium-term inflation will not decrease

European Central Bank

London, (Business News Report)|| The European Central Bank confirmed that prices are too high and that this will have an impact on inflation, which will not fall again in the medium term.

“We are aware of the underlying risks caused by the war and the uncertainty it is creating in all directions,” Christine Lagarde said in her speech at The ECB and Its Watchers XXII conference held in Frankfurt, Germany.

“For this reason, all our monetary policy decisions in the months to come will necessarily be informed by the economic fallout from the war and be data dependent,” she added.

Lagarde noted that the euro area economy has already faced a number of challenges over the last months, such as economic recovery from the pandemic, higher energy costs, supply-side constraints and price pressures.

“We are unlikely to return to the same inflation dynamics we saw before the pandemic. We have therefore begun adjusting policy so that, when the necessary conditions are satisfied, we can take additional steps towards policy normalization,” she said.

The monetary institution raised its inflation forecast for 2022 to 5.1%, while price increases reached a record level of 5.8% in one year in February in the euro area, driven by high energy prices and disruptions in supply chains.

But former French minister warned that the upward effect may continue for some time, which affects commodities whose prices vary less frequently than energy prices.

The European Central Bank currently expects the inflation rate to drop to 2.1 percent in 2023 and then to 1.9 percent in 2024.

And lowered the growth forecast in the euro area to 3.7% for 2022 due to the repercussions of the war in Ukraine on global activity.

Lagarde noted that the ECB should “manage a shock that pushes inflation above our target and depresses growth in the short term.”

Yesterday, the European Statistics Office showed that the inflation rate rose more than expected in February.

The inflation rate reached 5.9 percent last month, compared to 5.1 percent in January.

According to Al-German, the core inflation rate, excluding energy, food, some drinks and tobacco, rose to 2.7 percent, compared to 2.3 percent in January.

The data showed that energy prices rose 32 percent on an annual basis, and the prices of food, some drinks and tobacco by 4.2 percent.

Lagarde stressed that policy makers are aware of new developments and are working to increase the available options, stressing the bank’s commitment to move gradually and flexibly in order to implement its mission to maintain price stability.

Lagarde acknowledged that the war may cause a new inflationary wave. “We understand the risks, and are ready to review our plan if the incoming data shows the need,” she said.

In addition, the European Commission has started public consultations to collect views on the rules of state assistance to banks in difficulty, according to a statement.

Bloomberg quoted a statement by the Commission, that it will assess whether the rules for government aid to troubled banks, which were originally set up to deal with the impact of the global financial crisis in 2008, have achieved their goals and whether they are still fit for purpose.

In this context, an external contractor will be commissioned to conduct a study, collecting and evaluating deep data on the banking sector.

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