Eurozone inflation could rise temporarily again in the coming months. European Central Bank Vice President Louis de Guindos warned of this in a speech during the Frankfurt European Financial Week.
“We expect a temporary increase in inflation in the coming months as the base effects of the sharp increase in energy and food prices in the fall of 2022 fade,” de Guindos said. The Spanish Central Bank therefore notes that the positive comparative effect of inflation compared to last year’s high levels is slowly disappearing. However, he believes that cooling inflation will continue in the medium term.
Following a record series of interest rate increases by the European Central Bank, inflation in the euro zone has now fallen sharply from a peak of around 11 percent a year ago. In October, inflation reached 2.9 percent. This is the lowest level in two years, but still above the European Central Bank’s target of 2 percent. Many ECB governors have already warned that the final part of the battle to bring inflation back to the desired level will be “the hardest.”
Energy and food prices
According to Al-Ghandos, energy prices remain an important source of uncertainty regarding inflation developments due to increasing geopolitical tensions. The same applies to food prices, which he said could rise due to adverse weather conditions and the climate crisis.
According to the Vice President, the ECB must be very careful with regard to communications “in these times of great uncertainty.” Therefore, he does not want to predict the possible future steps of the interest rate. However, he stressed that talk of interest rate cuts is “premature.”
ECB President Christine Lagarde warned earlier that it could not be ruled out that consumer prices in the euro zone could rise faster again and that the central bank must remain “vigilant” regarding inflation. On the other hand, it is expected in financial markets that the European Central Bank will have finished raising interest rates and that interest rates will be cut again over the next year. However, according to Lagarde, there will be no interest rate cuts over the “next few quarters.”
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