At the ECB “we have not completed the work” oninflation “and we must remain vigilant. We will not rest until the game is won and inflation is back to 2%”. This was stated by the president of the monetary institution, Christine Lagarde, in her speech at the gala dinner that opens the Sintra forum, the event that the ECB holds every year in Portugal.
The speech does not seem to offer any significant insights into the next moves of monetary policy if not to reiterate the approach adopted after the first rate hike decided in June – after a long period of stability which in turn followed the most aggressive bull cycle in the history of the ECB -: it is intended to decide from time to time based on the evolution of the datawithout committing to any predetermined path for the cost of money.
According to Lagarde – who in the midst of the European Championships used a football metaphor quoting Bobby Robson, historic English player and coach – the progress made in terms of moderating inflation allows “to look back and reflect on the path we have taken”, she continued. She explained that in normal circumstances, short-term inflation fluctuations are not considered a risk. But when there is the possibility that price shocks amplify and become more persistent, inflation expectations can become unmoored from the levels desired by the Central Bank.
The president claimed that if the ECB had not reacted forcefully to past inflationary surges, there would have been a risk of inflation being unanchored by 30%, both over last year and over 2024.
And given the magnitude of past setbacks, even today “a soft landing is not guaranteed.” Lagarde cited several factors, including the resilience of the labor market.
“We continue to face uncertainty about the future of inflation, especially in terms of how wages, corporate profits and productivity will relate. The resilience of the labour market “means that we can take time to accumulate further information but that we must also be aware that the growth outlook remains uncertain. All of this – he concluded – underpins our determination to be data-driven and take our decisions on a case-by-case basis”.
