Christine Lagarde, the governor of the ECB, made important statements on Monday, where she spoke about the progress made in combating high inflation in the eurozone. Speaking to the Financial Times, Lagarde confirmed that the European Central Bank is close to declaring victory in its battle against inflation, noting that the eurozone is close to reaching its sustainable inflation target of 2%. These statements came to confirm the continuation of efforts to reduce inflation to normal levels after years of disturbing increases.
Continued challenges in the services sector
Despite the remarkable progress, some challenges remain in some sectors. Lagarde stressed the need for caution regarding inflation in the services sector, as it is still hovering around the 4% level. Some components of core inflation show clear downward movements, but more work is needed to ensure these trends remain sustainable. At the same time, she emphasized that inflation in the services sector is a factor that requires careful monitoring, as it could affect price stability in the region. Service prices make up a large portion of the total basket of goods and services used to calculate inflation. Therefore, any increase in service prices can lead to continued pressure on the economy. Wage increases can also be part of this problem, as they can lead to wage inflation if not properly controlled.
Implications of global trade and the US economy
On the global level, Lagarde also addressed the negative effects that trade disputes may have. She stressed that retaliation against trade could be harmful to the global economy as a whole. Trade disputes between countries can lead to slower economic growth, higher prices, and create instability in financial markets. This can have negative effects on businesses and consumers alike.
Challenges related to wages and purchasing power
Lagarde also raised an important point regarding the purchasing power of citizens in the euro area. She stressed that there is a prevailing impression among people that their disposable income is not enough to keep up with the continuous rise in prices. She added that rising prices and wages together could have a negative impact on purchasing power. In this context, she stressed that the European Central Bank continues to monitor wage developments closely, as rising wages without taking into account increased productivity could pose an additional challenge in the fight against inflation.
Higher wages without a parallel increase in productivity could lead to new inflationary pressures, as higher wages are offset by higher prices.
Fear of a return to negative interest rates
One of the prominent topics in Lagarde’s statements was the negative interest rate policy that the European Central Bank previously implemented. Lagarde said that the bank hopes that monetary policy will not return to the stage of negative interest rates. During the period when the negative interest rate policy was in place, European banks aimed to stimulate the economy by encouraging investment and facilitating borrowing. However, these policies have raised a lot of controversy regarding their negative effects on the financial system and investors.
While stimulus policies are beneficial in difficult times, negative interest rates can also hurt the returns of savers and investors, which can lead to a decrease in confidence in the European economy in general. Therefore, Lagarde hopes to avoid returning to this system, focusing on maintaining a delicate balance between raising interest rates and promoting economic stability.
Continuing on this topic, Lagarde spoke about the effects of these economic policies on the US economy. She said that the negative effects may also be evident in the US economy.
Future expectations for monetary policies
In the context of future expectations, Lagarde noted that the European Central Bank will continue to carefully monitor economic developments. Its decisions will remain mainly linked to inflation and unemployment levels, in addition to the effects of international financial policies. Next year, the European Central Bank is expected to make significant changes to its monetary policy, either raising or lowering interest rates, depending on the economic situation in the Eurozone.
It is important for major countries, including the European Union and the United States, to seek to resolve trade disputes through negotiations rather than continuous escalation. Trade disputes could lead to a decline in US economic performance, especially in light of the increasing tensions in global trade.
The European economy may witness a shift in the coming period, as the focus increases on achieving long-term and sustainable stability. Future policies of the European Central Bank also focus on stimulating growth without sacrificing financial stability, which requires a careful strategy to avoid high inflation in the future. Next year is expected to witness significant changes in the monetary policy of the European Central Bank, whether in raising or lowering interest rates, based on the economic situation in the Eurozone.
It is clear that the Eurozone is heading towards a period of financial and monetary stability after years of economic pressures resulting from high inflation. However, some challenges remain, such as service sector inflation and high wages, which require careful monitoring. At the same time, the European Central Bank hopes to avoid a return to negative interest rates, which have had complex economic effects.
Based on these factors, the coming period will require the European Central Bank to make decisive monetary decisions to continue to stabilize and stimulate growth, in a challenging economic environment.