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ECB on »Greenflation«: Christine Lagarde thinks the debate is overdone

2022-02-11T12:35:13.529Z


Consumer prices are rising mainly because of high energy costs. Nevertheless, the ECB still considers the risk that the situation will worsen as a result of the energy transition to be low.


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Christine Lagarde: »The current impact of decarbonization on prices is minimal«

Photo: Thomas Lohnes/Getty Images

So far, the President of the European Central Bank (ECB) has not feared any significant additional price hikes as a result of the energy transition.

"The current impact of decarbonization on prices is minimal, whether we're talking about emissions trading or special taxes," said Christine Lagarde.

She 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.

“The price of oil has risen from under €20 in April 2020 to €90 per barrel and is very unlikely to continue to rise at the same pace.

Inflation will slow down for that reason alone.”

In view of this, Lagarde argued: "I think the whole debate about green inflation is exaggerated." This also applies to the increasingly expensive raw materials of the energy transition such as silicon, nickel and copper.

»The impact of these special raw material prices on the general price development is small, at least for the moment.«

Lagarde sees no wage-price spiral coming

In fact, according to experts, the reasons for the currently high prices, especially in the energy sector, are different - and in the long term the energy transition should also be worthwhile.

In the medium term, as ECB Director Isabel Schnabel said back in January, the switch to green energy sources could entail the risk of higher inflation.

In any case, ECB President Lagarde does not expect any further surge in inflation due to the forthcoming wage rounds.

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 agreements are accelerating the inflation process.

The wage demands are very moderate in most euro countries, including Germany.

Unlike the German Bundesbank President Joachim Nagel, Lagarde thinks little of acting too quickly to combat inflation.

If the ECB were to act rashly, "our economies could recover significantly worse and jobs would be at risk," she said.

"That wouldn't help anyone."

The ECB has not yet reached its goal of stabilizing the inflation rate at its target of two percent in the medium term and permanently.

"But we're making progress and getting closer," Lagarde said.

"That would allow us to roll back some of our interventions."

Inflation played down for a long time

According to Lagarde, the ECB is monitoring the effects of high energy prices very closely.

“We'll be looking at this very closely in March and at all other meetings over the next few months.

If necessary, we will act.

But that can only be done step by step.«

The monetary authorities had previously been heavily criticized for underestimating the risk of inflation for a long time – and dismissing it as a temporary phenomenon.

It is only recently that the ECB no longer believes that inflation will quickly disappear again.

Inflation is an important indicator for monetary policy.

The central bank is aiming for an annual inflation rate of two percent in the euro area and is at least temporarily willing to accept a moderate overshoot or undershoot.

Critics accuse the ECB of fueling inflation with its ultra-loose monetary policy, which it actually wants to keep in check.

However, the low interest rates and purchases of government bonds are supporting the heavily indebted countries in southern Europe.

Apr/AFP/Reuters

Source: spiegel

All business articles on 2022-02-11

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