Lagarde: Eurozone economy is not over the top yet

Released on 28.09. 2021

  • Christine Lagarde, President of the ECB. Photo: Boris Roessler

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The pandemic had affected the economy in the euro area. The ECB President says that the shock has not yet been fully digested. She sees a temporary effect in the increase in consumer prices. 2021

Frankfurt / Main (dpa) – The economy in the euro area has not yet fully digested the corona shock, according to Europe’s monetary authorities. “The economy has bottomed out, but is not quite over the mountain”.

That said the President of the European Central Bank (ECB), Christine Lagarde, at the beginning of the annual ECB Central Bank Conference, which this time was organized as an online event.

The rapid upswing after the end of the Corona restrictions also explains the comparatively strong rise in inflation rates recently. What can currently be observed is “primarily a phase of temporary inflation in connection with the reopening,” said Lagarde.

From the ECB’s point of view, the rise in consumer prices is temporary and due to special factors as a result of the Corona crisis. For example, crude oil prices collapsed due to low demand on the world market after the outbreak of the pandemic in spring 2020. They have since recovered. The return to the usual VAT rates in Europe’s largest economy Germany on January 1st 2021 also had an effect on inflation in the euro area.

«In fact, the low inflation rate last year and the high inflation rate this year correspond on average to the inflation rate that 2019 was seen before the pandemic, ”said Lagarde. The price level is therefore roughly as if inflation had remained at its pre-pandemic level.

The central bank is now aiming for an annual inflation rate of two percent for the euro area and is at least temporarily ready to accept a moderate overshoot or undershoot of this mark. A supportive monetary policy course is still needed, “in order to safely overcome the pandemic and sustainably reduce inflation to two percent,” affirmed Lagarde.

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