(Bloomberg) — The European Central Bank’s battle with inflation is not over and more action is needed, according to President Christine Lagarde.
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In an interview published Wednesday to Japan’s Nikkei newspaper, Lagarde said that while inflation is well below its double-digit peak, the outlook could face “significant upside risks.” He said that the ECB should pay special attention to wage pressures.
Lagarde said, ‘We have moved very thoughtfully and decisively to fight inflation.’ Still, “we still have more ground to cover.”
After slowing the pace of its unprecedented monetary-tightening campaign last week, the ECB is stressing that hikes are not over yet. Inflation remains well above the 2% target and some officials say they want to see a tangible change in the core gauge, which does not include food and energy costs, before raising rates.
Underlying price gains narrowed a touch in April, the first decline in 10 months, but remained high. Most economists believe the ECB will raise its deposit rate twice more in June and July, taking it to a peak of 3.75%.
“We are not done with a rate hike yet,” Bundesbank chief Joachim Nagel told German radio on Wednesday, though he added that policymakers are “coming to the domestic vibe.” Greece’s Yanis Stornaras said the hike would almost certainly end this year.
Speaking on Tuesday evening, Isabelle Schnabel, a member of the executive board, said the ECB would continue to hold down borrowing costs “with great determination until there are signs that core inflation is also falling on a sustained basis.”
She sought to calm expectations for a cut in the months after the so-called terminal rate is reached – remarks echoed by Latvia’s Martins Kazaks, who told Bloomberg this week that investors are wrong to bet on a cut early next year.
Commenting on the economic trajectory in the 20-nation euro zone, Lagarde said recession is not the baseline scenario.
(Update with other ECB officials starting in sixth paragraph.)
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