ECB warns inflation could rise again as rate reductions ruled out for now

Despite the rapid fall in inflation to 2.9% across the eurozone last month, Christine Lagarde warned that swift disinflation may end soon and price growth could even accelerate

ECB president Christine Lagarde said there will be reductions in interest rates for at least 'the next couple of quarters'. Picture: Michael Probst/AP

Eurozone inflation could tick up in the coming months but European Central Bank (ECB) interest rates held at their current level at least for several quarters could still get price growth back to 2%, the president of the ECB has said.

Last month, the ECB decided to pause interest rate increases for the time being after 10 straight hikes.

A rapid fall in inflation to 2.9% across the eurozone last month only reinforced these bets but Christine Lagarde, ECB president, warned that quick disinflation may be ending soon and price growth could even accelerate in the near term as high energy prices get knocked out of year-on-year comparisons.

“There will be a resurgence of probably higher numbers going forwards and we should be expecting that,” Ms Lagarde told a Financial Times event.

“Even if energy prices were to remain reasonably flat now, we will be losing the base effect come January and February.”

Ms Lagarde hinted that even if inflation picks up, another rate hike may not be needed.

“We are at a level where we believe that, if kept long enough — and this long enough is not trivial — will take us to the 2% medium-term target,” Ms Lagarde said.

When asked what long enough means, Ms Lagarde said no change should be expected in the “next couple of quarters”.

French central bank chief Francois Villeroy de Galhau meanwhile said that no further hikes were coming unless there are fresh shocks but it was too early to discuss cuts. But she also warned that risks to inflation continue to persists and the ECB was uncomfortable with the lack of an agreement over a new fiscal framework for EU countries.

• Reuters