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Christine Lagarde: A tight monetary policy is the wrong signal, said the head of the ECB
Photo: FREDERICK FLORIN / AFP
The head of the European Central Bank, Christine Lagarde, speaks out against a rapid tightening of monetary policy.
The central bank should not react prematurely in the face of "temporary or supply-related inflation shocks", said Lagarde in a broadcast of the Frankfurt Banking Congress.
"We're not taking this period of higher inflation lightly," Lagarde said.
With a tighter monetary policy, however, one runs the risk of making an upswing more difficult "at a time when purchasing power is already being reduced by higher energy and fuel costs."
Inflation has been rising for months
The inflation rates have been climbing for months.
In Germany, for example, consumer prices in October were 4.5 percent above the level of the same month last year.
Inflation in this country is as high as it was 28 years ago.
In the euro area, too, the inflation rate of 4.1 percent in October was well above the medium-term target of 2 percent that the ECB is aiming for.
"In particular, we recognize that higher inflation depresses people's real incomes, especially those at the lower end of the income distribution," Lagarde said.
Much of the jump in inflation, however, can be explained by special factors that should gradually weaken again over the next year.
The monetary authorities name, for example, the recovery in oil prices after the corona shock and delivery bottlenecks as a result of increased demand.
In addition, the withdrawal of the temporary VAT cut is having an impact in Germany.
Inflation should not be underestimated
However, a number of economists and bankers warn against underestimating the current inflation trend.
Critics accuse the ECB of using the cheap money to fuel inflation, which it actually wants to keep in check.
"We are determined to ensure that inflation stabilizes at our target of 2 percent in the medium term," said Lagarde.
"Today, inflation is largely driven up by the extraordinary circumstances caused by the pandemic." Therefore, monetary policy must "remain patient and persistent," said the ECB President.
jlk / dpa