Inflation in the eurozone has started to decline but the area’s monetary authority expects it to remain above its target in the next two years. The European Central Bank has to do more to bring it down, its governor commented on the backdrop of stable consumer expectations about rising prices during the said period.
Euro Area Inflation Projected to Stay Above Medium-Term Target, Christine Lagarde Says
Eurozone inflation is decreasing, having dropped from double-digit numbers in the early fall of 2022 to 5.5% for the whole area of the single currency in June, President of the European Central Bank (ECB) Christine Lagarde said in an interview published by the bank this week.
Speaking to the French daily La Provence, Lagarde explained that the trend is mainly due to the fall in commodity and energy prices while suggesting that the ECB’s monetary policy decisions had also had an impact on prices.
However, when asked by the newspaper if “inflation is under control at last,” she pointed out that it is “still higher than our medium-term target of 2% and according to our staff projections, is set to remain so in 2024 and 2025,” emphasizing:
We therefore still have work to do to bring it back down and reach our target.
Lagarde’s statements coincided with the release of the ECB’s latest Consumer Expectations Survey results. According to the study, inflation expectations for the next 12 months have decreased, while those for inflation in the next three years have remained stable.
“The median rate of perceived inflation over the previous 12 months decreased to 8.0% in May 2023, from 8.9% in April. Median expectations for inflation over the next 12 months also decreased to 3.9%, from 4.1% in April, while those for inflation three years ahead remained unchanged at 2.5%,” the bank detailed in a report.
At the same time, consumer expectations for nominal income growth over the next 12 months increased slightly, while expectations for nominal spending growth continued to decline, the European Central Bank highlighted.
In her interview, Lagarde noted that profit margins have not decreased during the recent period of high inflation and have even increased in some cases. She left it to the firms to decide whether to meet their employees’ expectations and restore some of their purchasing power but warned that a simultaneous increase in both profits and wages would fuel inflation and stressed that the monetary authority “would not stand idly by in the face of such risks.”
Do you expect inflation in the eurozone to be near the ECB’s 2% target in the next two to three years? Tell us in the comments section below.
