(Feb 26): President Christine Lagarde repeated that the European Central Bank (ECB) has succeeded in taming consumer prices, while cautioning that policymakers must keep an eye on elevated perceptions of inflation.
Speaking at a regular hearing with European lawmakers on Thursday in Brussels, she predicted that officials will meet their 2% goal over the medium term.
“Our efforts to bring inflation down have been effective,” Lagarde said. “However, even though inflation has declined, surveys show that many citizens still perceive prices to be rising faster than the official data suggest.”
While policymakers stress “full optionality” on their next interest-rate moves, they’re showing no inclination to tweak them any time soon. They forecast inflation to stabilise at the 2% target over the medium term and growth to pick up. However, some see a risk of a more prolonged undershooting, with the euro’s ascent and cheap China imports seen as key dangers.
However, perceived inflation is higher than actual readings, according to the latest Consumer Expectation Survey. This can negatively affect private consumption and lead to higher wage claims, making the central bank’s job of maintaining price stability and fostering growth harder.
“The ECB pays close attention to households’ inflation perceptions — not only because these have an impact on economic activity and expectations, but also to ensure that we continue to earn the trust of the people we serve,” Lagarde said. “Our role is to focus on delivering our mandate and explain not only what we do, but also why and how we do it, and to do so in a way that can be easily understood.”
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