Although the inflation rate in the euro area recently reached its highest level since 2008 at 3.4%, the European Central Bank is relentlessly pursuing its accommodative monetary policy. On Thursday after the ECB Council meeting, ECB President Christine Lagarde spoke of specific factors responsible for the price increase, such as the sharp rise in oil, gas and electricity prices and the production bottlenecks. Therefore, the inflation rate will continue to increase this year. “We expect prices to drop again next year, however,” said Lagarde.
The ECB is under pressure. The higher prices of these essential expenses are painfully felt by many citizens, and many food items have also become significantly more expensive. In Germany, the inflation rate in October was 4.5%. This is the highest level in 28 years.
Many other central banks are registering equally strong price increases in their economic zones. The Bank of England and the US Federal Reserve have therefore already announced that they will tighten their monetary policy; there is a rise in interest rates in the room. In both countries, the inflation rate is above four and five percent, respectively.
The stance of the ECB’s monetary policy is slipping, even though the economic situation in Britain and the United States is different. But Lagarde is also experiencing resistance internally. Bundesbank President Jens Weidmann has repeatedly stressed that the European Central Bank should not underestimate the risk of inflation. Quite surprisingly, he announced his departure last week at the turn of the year. He gave private reasons for this, but between the lines it could be read that Weidmann saw no chance of finding a majority in the Board of Governors with his arguments. Saying goodbye, he warned that the ECB should “not lose sight of the dangers of inflation”.
Corona emergency program is expected to last until at least March 2022
Lagarde regretted Weidmann’s withdrawal and said she had always worked well with the head of the Bundesbank. “I don’t think his decision is an expression of exhaustion in my management style,” said the President of the ECB. The monetary policy debate in the Governing Council then revolved around only one subject: “We discussed inflation, inflation, inflation. We know that Europeans are worried about inflation. But we are convinced that our analysis is correct and the prices will fall further. “
The Governing Council has therefore decided to continue the emergency corona program of 1.85 trillion euros until at least March 2022 and to leave the key interest rate at zero percent. The decision on the future of the program is expected for the December meeting, when the central bank has new forecasts for the economy and inflation.
“I caution against downplaying long-term inflation risks. The ECB is likely to continue to finance a large part of the budget deficits by buying government bonds, which means too much money is going into circulation.” , said Jörg Krämer, chief economist. at Commerzbank. Climate policy would also argue for an increase in inflation risks. “It is time for the ECB to end its extremely accommodative monetary policy.”