Lagarde: European Central Bank will go ‘as far as necessary’ to tame inflation

The European Central Bank (ECB) will go “as far as necessary” to tame the worst bout of inflation on the Continent since records began, its chief said today.

President Christine Lagarde said at the ECB’s monetary policy summit that the central bank’s commitment to getting the rate of price rises back to its two per cent target is “unwavering”.

Living costs in the 19 countries that use the euro – soon to be 20 when Croatia joins the currency union next January – have climbed 8.1 per cent annually, the quickest acceleration since the creation of the euro in 1999.

The bloc is not alone in suffering from a steep inflation jump. 

The UK has the highest inflation rate in the G7, reaching a forty year high of 9.1 per cent last month. Across the pond, prices are up 8.6 per cent over the last year, the biggest increase since the 1980s.

Supply and demand mismatches in various markets, particularly for energy, and Russia’s invasion of Ukraine have propelled prices in Europe.

Lagarde reaffirmed the ECB’s intention to lift rates for the first time in over a decade at its meeting next month by 25 basis points.

She also said if inflationary pressures continue, the ECB will opt for a larger 50 basis point rise in September.

After that meeting, the pace of monetary policy tightening will be “gradual and sustained,” Lagarde said.

The ECB will buy bonds of countries where debt costs soar as a result of higher rates to ease financial conditions, she added.

Earlier this month, the central bank organised an emergency meeting to address the widening gap between rich countries and poor countries’ debt servicing costs – known as spreads.

It announced it was creating a new tool to target bond buying at countries most vulnerable to higher rates.

The ECB’s ability to transmit policy is often hobbled by it overseeing various countries that have different levels of economic strength. Italy, for example, has less capacity to absorb higher rates compared to Germany.

The Bank of England and US Federal Reserve do not have this problem.