President of the European Central Bank (ECB) Christine Lagarde told European lawmakers on Monday she would be surprised if inflation in the eurozone has already reached its peak, suggesting that the ECB’s recent increase in interest rates is not yet over.
“I would like to see inflation peak in October, but I’m afraid it’s not that far yet,” she said, adding that there is still too much uncertainty to assume that inflation has peaked, particularly due to high energy costs at the wholesale level, which are reflected in retail prices.
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The overall pace of consumer price growth slowed in November for the first time in a year and a half, but remained above 10 percent, as predicted by almost all economists. Statisticians are due to publish inflation data in the eurozone on Wednesday.
Investors are now looking for any sign that the ECB’s interest rate hikes might be at an end after the steepest rise in borrowing costs in its history. These hikes have been viewed with apprehension, as they come at a time when the eurozone is preparing for a recession.
Some members of the ECB’s board of governors have already called for a slowdown in the pace of interest rate increases, also due to their plans to start selling €5 trillion worth of bonds bought during recent crises. However, others see little scope for easing the pace of rate hikes with inflation running more than five times the ECB’s 2 percent target.
Lagarde added that in deciding to what level interest rates will rise, the ECB will base its decision on the updated outlook, the persistence of economic shocks, the reaction of wages, and inflation expectations. According to her, this may mean that with continued price pressures, borrowing costs will reach a level that will limit economic growth.
