Although the recovery of the Eurozone economy continues to be “solid & rdquor; and will reach its pre-pandemic level by the end of the year, there are risks on the horizon – stemming from supply bottlenecks and rising energy prices – that are pushing growth to more “moderate” terrain. . The President of the ECB, Christine Lagarde, explained this Monday before the economic affairs commission of the European Parliament that while consumer spending is strong, a lack of materials, equipment and labor is weighing on production and weakening short-term prospects. Added to this risk is the rising energy prices that has contributed to trigger inflation at record levels. If the rise continues, inflation could remain high for longer than initially expected, Lagarde warned, who rule out a rate hike of interest in 2022.
Despite this warning, the ECB continues to consider that the rise in inflation -shot to 4.1% in October- is temporal and what will go gradually moderating in 2022 until it is below the 2% symmetric target. According to the diagnosis of the president of the bank, the rise in inflation is due to three main factors. In the first place, the increase in energy prices That is 50% of inflation. Second to demand recovery after the reopening of the economy that faces a restricted supply and pushes the previous ones to the upside and, thirdly, to the reversal of the temporary VAT cut in Germany. This last element will disappear from the inflation calculation as of January 2022, although the first two could last longer.
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“The current prices of futures point to a notable relaxation in energy prices in the first half of 2022. As the Recovery continues and bottleneck supply relax, we can expect the Pressure on the prices of goods and services is normalized. As a result, we still believe that inflation will moderate over the next year, but it will take longer to fall from what was originally expected & rdquor ;, Lagarde has acknowledged that he has added that if energy prices continue to rise or the restrictions of the offer persist inflation could “stay higher for longer than we currently anticipate & rdquor ;.
This situation could lead to higher wages and consequently higher prices, although the president of the ECB has insisted that at the moment they have no proof of this. “We see a wage growth next year, possibly a little more than this year, but the risk of second round effects It is still limited & rdquor ;, he said before the European Parliament. Lagarde has also insisted that given the moderate inflation outlook for 2022 it is “unlikely & rdquor; that the three conditions that lead to an increase in interest rates are met. Regarding the purchase of public debt on the part of the ECB, Lagarde recalled that at a time when the purchasing power is already being reduced by rising energy and fuel bills, a hardening undue of the financing conditions and would represent an unjustified headwind for the recovery & rdquor ;.
Reference-www.elperiodico.com