Continued bottlenecks in the supply chain and soaring energy costs are slowing growth in the Eurozone and will keep inflation higher than expected, said the President of the European Central Bank (ECB), reiterating the message. that the ECB is unlikely to raise interest rates in 2022.
The ECB expected a rapid decline in inflation next year, but its officials now openly admit that their forecasts, which have already been revised several times, are still very low, as the pressure on the global economy has its impact.
Lagarde continued to refute calls and bets on the market to tighten its policy, reiterating the ECB’s message that interest rate hikes are unlikely to be met next year as inflation forecasts remain below 2% target in the medium term.
“Shortages of raw materials, equipment and manpower are burdening manufacturing production, weakening the medium-term outlook,” he said.
Inflation in the Eurozone rose to 4.1% in October and may approach levels close to 4.5% by the end of the year, to begin after a slow decline that will bring it back below 2% only towards the end of the year. 2022, according to economists’ forecasts.
Lagarde added that the bottlenecks are likely to ease next year and that forward energy prices are set to fall sharply in 2022, suggesting that inflation will fall, even if it will take longer for prices to normalize. “We are still seeing inflation subside next year, but it will take longer to decline than initially estimated,” he added.
The ECB predicts that in 2022 average inflation will fall below 2%, a forecast that is likely to be outdated as private estimates, like the European Commission’s forecasts, show prices rising by more than 2%.
Lagarde noted that wages could be adjusted for inflation, but reiterated that the ECB does not yet see price increases due to wage increases. “We see a possible slightly higher wage increase next year than this year, but the risk of side effects remains limited,” he said.
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