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Keeping inflation under control will become more difficult as trade tensions and other “structural shifts” make the world more volatile, the European Central Bank has warned because it promised to combat high price growth with “powerful or persistent” actions.
European tariff setters have adjusted their strategy to emphasize the risk of sudden but persistent inflation, after being caught in 2021-22 in 2021-22, partly because of the war in Ukraine. The previous strategy was aimed at the then relevant risk of deflation.
“Structural shifts such as geopolitical and economic fragmentation and increasing the use of artificial intelligence make the inflation environment more uncertain,” the ECB warned in a monetary policy strategy on Monday.
“Liver shocks are becoming more and more often,” Lagarde said in a speech on Monday evening at the start of the annual international conference of the ECB in Sintra, Portugal.
The ECB keeps the inflation objective in the medium term of 2 percent that was introduced four years ago, and emphasizes that it will combat “large, persistent inflation deviations of target in both directions”.
It promised to apply a “powerful or persistent” response to do this, and added that it was brace to fight “larger target deviations in both directions” in the future.
ECB President Christine Lagarde said reporters on Monday that while the new environment gave Burgers’ many reasons to worry … One thing they don’t have to worry about, our dedication to price stability is“.
The Central Bank has drastically changed its monetary policy since 2022. He first hurried to put an end to her bond program and then increased the interest rates from minus 0.5 percent to a record high of 4 percent within 14 months.
Otherwise, the inflation expectations in 2022 and 2023 would have gotten out of hand with a chance of more than 30 percent, Lagarde said in Sintra, pointing to ECB research.
Subsequently, it stopped the loan costs up to 2 percent since June last year as inflation. Investors bet at the end of the year at the end of the year, according to Reuters’s data.
Inflation is delayed from a peak of almost 11 percent at the end of 2022 and fell last month under the objective of 2 percent of 2 percent.
The interest rates would remain if the preferred policy method, but the ECB would retain the controversial tools for buying bonds that it introduced during the years of ultra-loage inflation and negative interest rates and that have drastically blown up his balance, said it.
The document is the first assessment of the policy since 2021, where Lagarde said that the next assessment was planned for 2030.
The central bank said it would retain the options to buy assets and to provide cheap, longer running financing to banks to “protect the smooth functioning of monetary policy transmission” or when the interest rates are close to the lower limit “.
“Our strategy assessment is an exercise in evolution, not a revolution,” said Lagarde, adding that “many of the conclusions are already reflected in our current policy behavior”.
Société Générale economist Anatoli Annenkov wrote in a note to customers that although the new ECB strategy was “commendable transparent”, “no errors can occur when identifying temporary or persistent deviations from Target”.
