The president of the European Central Bank (ECB) said on Monday that if euro governments do not withdraw support for the energy crisis, inflationary pressures will increase, which will require “a stronger monetary policy response”.
“As the energy crisis fades, governments must swiftly and collectively reverse related support measures to avoid mounting inflationary pressures over the medium term, which would require a stronger monetary policy response.” stated Christine Lagarde.
Speaking at a hearing in the European Parliament’s Committee on Economic and Monetary Affairs, the ECB leader also welcomed the European Commission’s “recommendation to member states to reduce fiscal measures taken in response to the energy price shock in 2023”.
For example, in the case of Portugal, the European Commission urged the country to end support measures for households and businesses due to the energy crisis and to use the ‘slack’ to reduce the deficit, and also requested that the country to speed up the implementation of the recovery and resilience plan.
In the European Commission’s spring economic forecast, published in mid-May, the institution indicates that the net budgetary costs of energy support measures will amount to 0.8% of gross domestic product (GDP) in 2023, compared to 2.0% in 2022 , but makes no estimate for 2024, assuming the end of such aid.
Speaking before members of that parliamentary committee, Christine Lagarde pointed out that “Indicators of underlying inflationary pressures remain high [na zona euro] and while some show signs of moderation, there is no clear evidence that underlying inflation has peaked,” recalling price pressures and wage increases.
“We are fully committed to the fight against inflation and are determined to achieve the timely return to our medium-term target of 2%. This commitment to price stability contributes to medium-term economic growth and employment and thus to the reduction of inequalities ‘ he enumerated.
Taking stock of monetary policy measures taken so far, Christine Lagarde said the effects of rate hikes are “starting to manifest” to reduce inflation, though she acknowledged the impact on “financing conditions for firms and households, as seen in the rise in borrowing rates and the fall in borrowing volume”.
Source: DN
