The president of the European Central Bank (ECB) Christine Lagarde, speaking at a forum on Tuesday, said that we will only react to improvements in headline inflation when it creates confidence that it will last. He indicated that an accommodative monetary policy stance is still necessary.
Lagarde said there is a risk that a higher carbon price will reduce purchasing power and lead to relative price changes that push core inflation down. “The key challenge is to ensure that we do not overreact to transitory supply shocks that are unrelated to the medium term,” the official explained.
“Once these pandemic-driven effects wear off, we expect inflation to decline“said the president of the ECB. They see no signs that the rise in inflation is becoming broad-based throughout the economy.
“Monetary policy must remain focused on safely pulling the economy out of the pandemic emergency and raising inflation sustainably towards our 2% target,” Lagarde reiterated. He stated that looking beyond the pandemic, they expect inflation to slowly converge towards 2%.
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