Lagarde Opens Room for ECB to Tighten
European Central Bank (ECB) President Christine Lagarde said energy price pressures are beginning to spread to other parts of the Eurozone economy. In an interview with France Culture on Monday (June 15), Lagarde emphasized that the ECB has seen the knock-on effects of inflation in recent weeks, including the risk of rising wages that could make price pressures more difficult to control.
According to Lagarde, when the knock-on effects of inflation begin to emerge, the central bank needs to take policy action. The ECB primarily monitors core inflation, or underlying inflation, as this indicator shows whether price increases have spread beyond the volatile energy component. This statement reinforces the message that the ECB is not completely relaxed despite the possibility of an easing of the US-Iran conflict.
The ECB last week raised interest rates for the first time since 2023, citing Middle East conflicts as a major factor driving price pressures. Several ECB officials, including Joachim Nagel and Martins Kazaks, also left room for further action if the surge in energy prices begins to spread to the broader economy.
Lagarde acknowledged that the interest rate hike could raise concerns about economic growth. However, she emphasized that the ECB's priority remains maintaining price stability. According to her, if inflation is allowed to spiral out of control, the costs of bringing it back down will be much greater and take longer for consumers and businesses.
Regarding the interim US-Iran agreement to reopen the Strait of Hormuz, Lagarde called this development good news if confirmed through the signing of a memorandum and the opening of the waterway. The opening of Hormuz could help reduce energy risks, but the ECB will still wait for concrete evidence before changing its policy stance.
For the market, Lagarde's message remains cautious. If energy prices fall after Hormuz reopens, Eurozone inflationary pressures could ease and support stocks and bonds. However, if the knock-on effects on wages and core prices continue to strengthen, the ECB could still potentially maintain a tight policy or raise interest rates again. The market's next focus will be energy prices, core inflation, wage growth, and ECB signals ahead of the July meeting. (Arl)
Source: Newsmaker.id
