On Monday, European Central Bank (ECB) President Christine Lagarde warned that inflation in the Eurozone has not yet hit its peak, and it will likely surge even higher.
Lagarde said that although she would prefer to see inflation, which hit a record 10.6% year over year last month, now begin to fall throughout the Eurozone, she suspects the 19 member bloc will have tougher times ahead.
In Brussels, she said to EU lawmakers, “I would like to see inflation having peaked in October, but I’m afraid that I would not go as far as that. There is too much uncertainty, particularly in one component, that is the pass-through in high energy costs at wholesale level into retail level, to assume that inflation has actually reached its peak. It would surprise me.”
She added that economists examining the matter still saw clear upside risks which could point to future inflation readings coming in higher than expected.
At the same time, investors are parsing her every word, looking for any clues on the future policy posture of the European Central Bank, following the most aggressive series of interest rate hikes and borrowing costs seen in history, all as the bloc teeters on the brink of an economic recession.
Lagarde went on, “How much further we need to go, and how fast we need to get there, will be based on our updated outlook, the persistence of the shocks, the reaction of wages and inflation expectations, and on our assessment of the transmission of our policy stance.” She added that could certainly involve taking borrowing costs to a level where it would constrain economic growth.
She added that after the third major rate hike which it imposed in October, which marked the fastest rate of interest rate hikes ever seen, she feels the ECB will expect, “to raise rates further to the levels needed to ensure that inflation returns to our 2% medium-term target in a timely manner.”
The Daily Financial Trends