Central Bank governor sees inflation slowing, and no rate hike in 2022
Gabriel Makhlouf: 'We do see inflation falling during the course of this year. It’ll probably stay over 2% throughout the course of this year, but it’ll fall from the level it’s been at.'
Inflation should slow in 2022 as supply-chain blockages and energy prices recede, but it’s likely to remain at more than 2% in the euro area for the rest of the year, according to Gabriel Makhlouf, the Governor of the Central Bank.
Mr Makhlouf said he doesn’t expect the ECB to raise interest rates in 2022, though policymakers will “have to keep a close eye”. The “big challenge” will be to watch for any second-round effects of inflation, such as wages rising without corresponding increases in productivity, he said in an interview with KCLR radio’s .
“If we see risks of those sort of second-round effects happening then we will definitely be taking action at the European Central Bank to manage that,” he said.
Euro-area consumer prices rose a record rate of 5% in December after a 4.9% increase in November.
As economies recover from the pandemic, monetary policy may tighten compared to the last two or three years, though the pace is “uncertain and to be seen,” Mr Makhlouf said.
While the Bank of England raised interest rates in December and the ECB expects the US Federal Reserve to do so at its next meeting, Europe is “probably on a slightly slower track to see what you might describe as normalisation,” Mr Makhlouf said.
While the ECB sees price growth coming in below its 2% target in 2023 and 2024, it has faced pressure to take action after inflation hit a record 5% last month. While officials have agreed to wind down emergency bond-buying, they are adamant that an interest-rate increase is highly unlikely this year.
ECB president Christine Lagarde reinforced her position that the bank can’t withdraw pandemic stimulus at the same pace as the US Federal Reserve, which is gearing up to raise interest rates in March.
The economic recoveries in Europe and the US are moving at different speeds, according to Ms Lagarde, who’s said repeatedly that upward pressure on prices from supply snarls and energy costs will gradually ease.
• Bloomberg
