Frankfurt, Berlin ECB President Christine Lagarde has warned against hasty rate hikes. “If we act hastily now, the recovery of our economies could be significantly worse and jobs would be at risk,” Lagarde told the “Redaktionsnetzwerk Deutschland”.
However, the European Central Bank (ECB) is taking preparatory steps. The pandemic emergency bond purchase program will end in March and the ECB will reduce the total volume of its net asset purchases.
“The end of net asset purchases is a prerequisite for rate hikes at a later date,” Lagarde said. When asked when the timing was, she said: “We are currently monitoring the rising inflation figures, which we include in our forecast. Inflation may be higher than we forecast in December. We will analyze that in March and then see what happens next.”
The ECB President considers the risk of an additional price hike from the energy transition to be low: “The current effects of decarbonization on prices are minimal, regardless of whether we are talking about emissions trading or special taxes.”
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In his own words, Lagarde expects energy prices to stabilize at a high level. The high cost of oil and gas is not a temporary phenomenon. But the price level is already very high. “Oil prices have risen from under €20 in April 2020 to €90 per barrel and are very unlikely to continue to rise at the same pace. Inflation will slow down for that reason alone.”
At the same time, the ECB is observing the effects of high energy prices on general inflation very closely. “We will look at this very closely in March and at all further meetings in the coming months. If necessary, we will act. But that can only be done step by step.”
No higher wage agreements
She does not expect any further surge in inflation due to the forthcoming collective bargaining rounds either. It is understandable and legitimate for trade unions to demand higher wages in order to maintain the employees’ purchasing power. At the moment, however, she “does not see it at all” that the wage settlements are accelerating the inflation process. The wage demands are very moderate in most euro countries, including Germany.
Experts are keeping a close eye on wage developments because this could provide indications of so-called second-round effects: If rising inflation leads to higher wage agreements and thus wage costs, this in turn can fuel inflation.
So wages and prices would push each other up and inflation would perpetuate. Not only would this further devalue consumers’ money, but it could also have a negative impact on businesses and jobs.
Referring to the cash abolition discussion, she said people are used to cash and don’t want to give it up. She therefore considers the debate on this to be superfluous. Even if a digital euro is introduced, there will still be euro coins and banknotes.
Private providers trying to establish cryptocurrencies speak in favor of the ECB project to introduce a digital euro: “We have to do something to counter that. It is unacceptable for money to be earned with users’ personal data.” In addition, the technology for private digital currencies also offers new dubious opportunities, for example for terrorist financing and money laundering. “Therefore, the creation of a digital euro should be a public project.”
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