Lagarde: Stagflation in the eurozone is “not our landmark” – Finance

European Central Bank President Christine Lagarde said on Saturday that high inflation combined with long-term stagnation was not a “criterion” for the institution, which is fueling debate over a future first rate hike.

“Although an unusual degree of uncertainty could mean a cumulative slowdown in growth and high inflation, the current situation cannot be compared to the 1970s,” Christine Lagarde said in an interview with the Slovenian daily Delo. Such a scenario, known in the past and marked by “stagflation”, “is not our reference at the moment,” said the former French economy minister.

The oil shock of the early 1970s caused the economy to collapse – by eight percentage points – and inflation was higher than it is today. In addition, a spiral of wage growth has begun in response to inflation, which has fueled it, which “we do not see today (…),” she added. His statement temporarily underscores the consistency of communication in central bank circles in the eurozone, where over the past week everyone has expressed their views on the right time to decide to raise rates. This will be an important step in the ongoing process of normalization of prudent monetary policy in response to crises, in particular those related to COVID-19 from 2020. The institute has already gradually withdrawn its repayments of significant amounts of debt. in 2015 to counter excessively low inflation.

These repayments should be reduced to zero (in its purest form) “at the beginning of the third quarter”, according to Ms. Lagarde, and adjustments to key rates “will take place after some time and will be gradual.” This leaves room for discussion of the first rate hike – since 2011 – during the latest monetary policy ahead of the summer break scheduled for July 21, as suggested by several ECB members, such as Isabel Schnabel, a member of the executive committee. The custodians of the euro should primarily decide in accordance with the development of the war in Ukraine. This war is “above all a human tragedy”, which also has “economic consequences outside Ukraine”: it “weighs growth and fuels inflation”, Ms. Lagarde insisted.

“Although an unusual degree of uncertainty could mean a cumulative slowdown in growth and high inflation, the current situation cannot be compared to the 1970s,” Christine Lagarde said in an interview with the Slovenian daily Delo. Such a scenario, known in the past and marked by “stagflation”, “is not our reference at the moment,” said the former French economy minister. The oil shock of the early 1970s caused the economy to collapse – by eight percentage points – and inflation was higher than it is today. In addition, a spiral of wage growth has begun in response to inflation, which has fueled it, which “we do not see today (…),” she added. His statement temporarily underscores the consistency of communication in central bank circles in the eurozone, where over the past week everyone has expressed their views on the right time to decide to raise rates. This will be an important step in the ongoing process of normalization of prudent monetary policy in response to crises, in particular those related to COVID-19 from 2020. The institute has already gradually withdrawn its repayments of significant amounts of debt. in 2015 to counter excessively low inflation. These repayments should be reduced to zero (in pure terms) “at the beginning of the third quarter”, according to Ms. Lagarde, and the adjustment of key rates “will happen in some time and will be gradual.” This leaves room for discussion of the first rate hike – since 2011 – during the latest monetary policy ahead of the summer break scheduled for July 21, as suggested by several ECB members, such as Isabel Schnabel, a member of the executive committee. The custodians of the euro should primarily decide in accordance with the development of the war in Ukraine. This war is “above all a human tragedy”, which also has “economic consequences outside Ukraine”: it “weighs growth and fuels inflation”, Ms. Lagarde insisted.

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