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Inflation in Europe likely to increase, more interest rate hikes likely, warns central bank president

The head of the European Central Bank said Monday she does not believe inflation has peaked after reaching the highest levels on record.

ECB President Christine Lagarde also told European lawmakers that the bank isn’t through raising interest rates to combat those price spikes.

There is too much uncertainty to know whether inflation, which hit 10.6 percent in October, would come down soon in the 19 countries that use the euro currency, Lagarde said.

When looking at what is driving inflation, “whether it is food and commodities at large, or whether it is energy, we do not see the components or the direction that would lead me to believe that we have reached peak inflation and that it is going to decline in short order,” she said.

That means the central bank will “continue to tame inflation with all the tools that we have,” primarily interest rate hikes, Lagarde told the European Parliament’s Committee on Economic and Monetary Affairs.

Following the bank’s third major rate hike in October, marking its fastest pace of increases ever, the ECB expects “to raise rates further to the levels needed to ensure that inflation returns to our 2 percent medium-term target in a timely manner,” she said.

The ECB has joined the U.S. Federal Reserve and other central banks around the world in rapidly raising rates to combat inflation that spiked as the global economy recovered from the COVID-19 pandemic, then got worse after Russia invaded Ukraine. Central banks risk tipping economies into recession as the world copes with an energy crisis, higher food costs and currencies weakening against the U.S. dollar.

The Paris-based Organization for Economic Cooperation and Development predicted the international economy would expand only 2.2 percent next year. Most economists expect a recession in places like Europe, the U.S. and the United Kingdom next year, with ECB Vice President Luis de Guindos saying this month that risk “has become more likely” in the eurozone.

Russia’s war hit Europe particularly hard, “given our proximity to the conflict and our dependence on energy imports” from Russia, Lagarde said Monday.

After Russia cut back most natural gas to Europe, sending energy prices soaring, governments have provided aid to help households and businesses with their bills.

Lagarde warned officials not to worsen inflation by ensuring support is “targeted, tailored and temporary” to those most at need and avoids weakening the push to cut energy use.



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