European Central Bank President Christine Lagarde appeared to ease market concerns about the direction of inflation. He today stated that the ECB will refrain from making drastic changes and is determined not to go overboard on this temporary price hike.
With rising inflationary pressures driven by many factors ranging from rising energy prices to constraints in supply constraints, eurozone borrowing costs have risen in recent weeks as investors have expectations of an earlier interest rate hike.
The ECB at the conference stated that the main challenge was to ensure that the ECB would not overreact to shocks in supply. Thus the ECB emphasizes that "we will only respond to major inflationary increases that we believe underlie dynamic inflation".
Inflation could rise as high as 4% by the end of the year, which is double its target rate. Yet Lagarde argues that price increases are declining rapidly and are below target rates for years to come.
On the other hand, wage growth is still flat and the unemployment rate is expected to fall below pre-crisis levels until the second quarter of 2023.
