“Inflation is largely temporary,” Lagarde said Saturday, after giving Per Jacobson’s lecture to the International Monetary Fund for the year 2021.
She emphasized that the European Central Bank was paying “very close attention” to negotiations on wages and other potential second-round effects, which could drive prices permanently higher. Eurozone consumer prices rose 3.4% in September, the highest rate in 13 years.
The European Central Bank expects inflation to peak later this year, before slowing down in 2022, with price growth expected to fall short of its medium-term target.
Lagarde added: “Monetary policy will continue to support the economy in order to achieve lasting inflation stability at our target of 2% in the medium term. The European Central Bank is committed to maintaining favorable financing conditions for all sectors of the economy during the pandemic period.”
The European Central Bank has launched a 1.85 trillion euro ($2.15 trillion) emergency plan to support the region during the COVID-19 outbreak.
The emergency support program is due to end in March 2022, and the Frankfurt-based central bank is already preparing to move to post-pandemic stimulus packages.
The European Central Bank is considering a new bond-buying program to prevent any market turmoil once buying ends during the crisis, officials familiar with the matter told Bloomberg last week.
“Once the pandemic contingency plan, which is getting closer, is over, our future directions on interest rates as well as asset purchases will ensure that monetary policy remains supportive of our timely target,” Lagarde said.