“Inflation will reach target by the end of 2025”
“We have in mind how much pain they inflict” interest rates at these levels in the euro area, “how much suffering there is“. “For example 30% of households in Member States have variable rate mortgages. It’s hard, we know it” underlines the president of the ECB Christine Lagarde, responding to the MEPs of the Econ commission in Brussels. “We also know – she adds – that the price of petrol at the pump and energy prices in general weigh heavily on low-income families income. We know it, but we also know that our mission, our duty And
bring inflation back to target in a timely manner. The more quickly we get back to it and the more stable prices return, the less difficult it will be to continue, both for those who have invested and for those who have taken on debt.”
The ECB will conclude the review of the operational framework for the management of short-term rates by spring 2024. The Eurosystem staff, it states, “is analyzing the optimal long-term size and composition of our balance sheet and, consequently, the appropriate level of excess liquidity. This is not a trivial issue, as it has implications for how we implement monetary policy. It is also a relevant issue for all major central banks, as the environment in which we operate has undergone changes fundamental in the last ten years”. “To this end – he adds – we are leading a complete review of the operational framework for managing short-term interest rates, evaluating the costs and benefits of alternative regimes. Our goal is conclude this review by spring 2024 and, of course, we will report back to this committee on the findings.”
“I would ask you to consider what would happen if we simply let inflation run” in the euro area. “How much confidence, what certainty would investors have that five, six, ten year projects will ultimately produce a return, if they don’t know at what level inflation will be anchored or if it will be left free to run? This is what guides us.” Core inflation (excluding food, energy, tobacco and alcohol) in the Eurozone “is currently at 5.3%, and we are coming from 5.5% and higher numbers before that. There is a declining trend in core inflation: it is a strong indicator that we take into account as part of the underlying indicators of inflation.” “It is not the only indicator we look at”, but “core inflation should also move downwards” in the coming years, to “2.2%” in 2025.
INFLATION
The ECB’s “latest” forecasts for the euro area “indicate that inflationary pressures should moderate and that inflation is aimed at reaching our goal by the end of 2025“. Inflation is expected to “fall from 5.6% in 2023 to 3.2% in 2024 and 2.1% in 2025”. “Based on our latest assessment, we believe that our policy rates have reached levels that , sustained for a sufficiently long period, will make a substantial contribution to the timely return of inflation to our target.”
“In any case – he adds – our future decisions will ensure that the ECB’s key interest rates will be set at sufficiently restrictive levels for as long as necessary. We will continue to follow a data-dependent approach, basing our decisions on our assessment of the inflation outlook in light of incoming economic and financial data, underlying inflation dynamics and the strength of monetary policy transmission,” he concludes.
Source-www.adnkronos.com