Christine Lagarde, president of the European Central Bank, said that although war in Ukraine had slowed growth and accelerated inflation, stagnation in the eurozone was not an economic consequence.
Lagarde said in a statement yesterday, “Currently the stagnation is not a fundamental situation. The exceptionally large uncertainty will cause a recession in economic growth with high inflation, and the current situation will not be comparable to its era. The seventies of the last century.”
Central banks face conflicting forces. The Russian war raises prices, weakening trust between businesses and families. European Central Bank officials are keen to continue to put pressure on the normalization of monetary policy, with many anticipating the possibility of a first rate hike in July.
He reiterated that based on the available data, net asset purchases are expected to end “at the beginning of the third quarter”. When asked about interest rates, the ECB chairman said officials would gradually “open up all options” and move forward.
In turn, Frank Elderson, a member of the European Central Bank’s board of directors, said yesterday that the current weak economic data did not indicate that the Russian war against Ukraine had plunged the eurozone into recession.
“Upcoming weak economic data have not yet indicated that we have entered a recession and we expect inflation to fall,” Elderson said on Twitter.
“It all depends on how the war develops and the impact of the sanctions imposed on Russia. We will decide the next stage of implementing our monetary policy next June,” he added.
Elderson noted that the war has severely affected economic activity, but that it raises inflation, mainly as a result of higher energy prices, and that the European Central Bank must ensure that inflation does not affect consumer expectations.
“We are already using a wide range of tools to deal with the situation, including potential flexibility as part of the reinvestment of the emergency bond purchase plan to meet the consequences of the epidemic,” he said.
Economic data shows that inflation in the euro area rose to 7.5 percent in April from 7.4 percent in March.
The European Statistics Institute (Eurostat) points out that the rise in consumer prices is due to an increase in energy costs, which was 38 percent in April compared to the same month last year.
Energy prices are expected to rise as tensions between European countries and Russia over the Ukraine war and the EU’s desire to reduce Russia’s dependence on oil and gas.
Food, beverage and tobacco prices rose 6.4 percent in April, compared to 5 percent in March, according to Eurostat.
And “Eurostat” added that the price of non-energy industrial goods rose 3.8 percent in March, compared with a rise of 3.4 percent.
Earlier this month, Louis de Kintos, vice president of the European Central Bank, said the bank’s rate hike in July was possible, but not possible.
“There is no reason why there should not be an end to net property purchases in July,” he explained in a press conference. “After that interest rates will rise, which could happen in a few months, weeks or days. Maybe in July, but that doesn’t mean it’s possible,” he added.
Amid high inflation recorded in the euro zone, policymakers are pushing the central bank to raise interest rates for the first time in more than a decade, according to Bloomberg News. Kindos added, “Any results will depend on new data and macroeconomic forecasts to be released in June.” Although he did not make progress beyond expectations, he acknowledged that a “significant decline in growth” was already noticeable.
Commenting on medium-term inflation expectations, he said, “So far, we have not seen a wage increase that could affect the central bank’s inflation target of 2 per cent in the medium term.”