Business & Economy

ECB says inflation could shoot past 7% in 2022 amid volatile growth

Berlin, March 17 (EFE).- Inflation in the eurozone could shoot past 7% in 2022 as the war raging in Ukraine pushes energy and food prices up, the European Central Bank’s president Christine Lagarde warned on Thursday.

Baseline projections for average inflation predicted it would hover around 5.1%, although Lagarde said that worst-case scenarios placed inflation at over 7%.

“We are also aware of the underlying risks caused by the war and the uncertainty it is creating in all directions,” Lagarde said at The ECB and Its Watchers XXII conference held in Frankfurt, Germany.

“For this reason, all our monetary policy decisions in the months to come will necessarily be informed by the economic fallout from the war and be data dependent.”

The highest level of inflation would respond to the worst-case scenario ECB experts had considered in their projections.

Lagarde said energy prices would remain high for longer and that gas prices had risen by 73% since early 2022.

Inflation pressure is likely to increase as “Russia and Ukraine account for nearly 30% of global wheat exports and wheat prices are up by more than 30% since the start of the year,” Lagarde said.

The ECB chief warned that global manufacturing bottlenecks are likely to continue clogging up production lines in some sectors. This could have a knock-on effect on the price of consumer goods.

“We are unlikely to return to the same inflation dynamics we saw before the pandemic. We have therefore begun adjusting policy so that, when the necessary conditions are satisfied, we can take additional steps towards policy normalization.”

Europeans will face higher inflation and slower economic growth in the short term, Lagarde acknowledged.

Higher energy prices are likely to reduce household savings accumulated during the pandemic.

Lagarde acknowledged that companies would also suffer and recalled that past geopolitical events such as the Gulf wars and the 9/11 attacks against the United States in 2001 triggered a decline in investment in advanced economies. EFE


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