In a today address to the European Parliament, ECB President Christine Lagarde noted that economic activity indicators have shown steady improvement in recent months, coinciding with diminished concerns over energy shortages and price hikes. However, she cautioned that accumulated price pressures are still spreading throughout the economy, albeit with some delay.
Lagarde observed, “Wage pressures have strengthened on the back of robust labor markets and employees aiming to recoup some of the purchasing power they have lost to high inflation.” She added that due to inflation remaining “too high for too long,” the ECB Governing Council decided to increase the three key interest rates by 50 basis points last week, demonstrating their commitment to returning inflation to the 2% medium-term target.
In light of the heightened uncertainty, Lagarde emphasized the importance of a “data-dependent” approach to policy rate decisions, stating, “Our policy rate decisions will be determined by our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”
