European Central Bank President Christine Lagarde warned that inflation is tightening its grip on the economy, stressing that the bank intends to raise interest rates enough to “repair this damage.”

Inflation Eases but Still Above Target

Lagarde acknowledged that inflation had eased from a record high last year when energy prices fell and the Bank implemented a series of rapid interest rate hikes aimed at curbing price increases by making borrowing and spending more expensive for consumers and businesses.

“We are seeing a decline in inflation as the shocks that initially caused it recede and the impact of our monetary policy on the economy becomes clear,” Lagarde said in her opening remarks at the European Central Bank’s annual policy conference in Sintra, Portugal.

However, she added: “However, these shocks are still ongoing, which slows down the rate of decline in inflation and increases its sustainability.”

Inflation Figures

Inflation in the 20 countries that use the euro was 6.1% in May, compared to a peak of 10.6% in October after falling energy prices.

But inflation is still well above the bank’s target of 2 percent, which is considered optimal for the economy.

Core inflation, which excludes food and fuel price volatility, is 5.3 percent.

New inflation figures will be released on Friday, when Deutsche Bank analysts expect headline inflation to fall further to 5.8%.

Expected Interest Rate Hike

The Bank is expected to raise interest rates again by a quarter of a percentage point at its next meeting on 27 July.

Source

Source: AFP.