By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, March 30, 2022
Food and energy prices in the euro zone are expected to stabilize, allowing the European economy to avoid combining low growth with high inflation (stagflation), said today Christine Lagarde, President European Central Bank (ECB), during a conference held by the central bank of Cyprus.
Consumer prices in Spain rose 9.8% year-on-year in March, their biggest rise since May 1985, and in Germany, their rise is expected to exceed 7%, pointing to a record for inflation across the eurozone.
Christine Lagarde said the inflation outlook was “changing,” with the war in Ukraine forcing economists to regularly revise their economic forecasts.
Inflation in energy and food prices, which was here since March 2021, has strengthened since the beginning of the Russian military operation in Ukraine on February 24.
The President of the ECB believes that energy and food prices are set to stabilize, albeit at high levels.
“We know that we are going to see higher inflation this year, there is no doubt about that,” she said at a conference organized by the central bank of Cyprus.
“We also see that some of the factors fueling inflation today, energy and food, are going to remain high. But we don’t foresee – don’t predict – that they will continue to rise more and more,” added Lagarde.
The ECB president acknowledged that the eurozone was facing slower growth and accelerating inflation but believes that “stagflation” – which she defines as “a recession of the economy on a sustainable basis and high inflation, which continues to rise” – can be avoided.
Unlike the US Federal Reserve and the Bank of England, the ECB has not yet raised interest rates, but it has nevertheless undertaken to reduce its exceptional support for the economy in the face of rising prices.
On March 10, the ECB announced its intention to end its asset purchase program in the third quarter of 2022, a prerequisite before any rate hike. On the basis of its updated assessment and in view of the uncertain economic environment in Europe, the Governing Council of the European Central Bank revised the timing of purchases under its asset purchase programme (APP) for the coming months. Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June.
While growth is under pressure in European economies, amid high public debts and supply chains disruptions following the coronavirus pandemics and the war in Ukraine, inflation is likely to remain permanently higher than expected. However, Christine Lagarde cannot say it clearly, because it would show everyone the mistakes of the European Central Bank about its quantitative easing and asset purchase program.
Another explanation of the optimism of Christine Lagarde about inflation in the eurozone could be the French presidential election which will be held on April 10 and 24. Emmanuel Macron, the current French president, who declared himself a candidate for re-election on March 3, 2022. Credible voices in Paris now say that Mr Macron will choose Christine Lagarde as Prime Minister for his new term 2022-2027. Therefore, Christine Lagarde would have a direct interest in minimizing the inflation impact of the eurozone economy, when French consumers are hit by higher energy, food and housing prices.
Mr Macron is being seen to lead the first round of the election on April 10 with 28 percent of the votes against Marine Le Pen’s 20 percent, according to recent surveys.
The rate of annual inflation of the eurozone hit 5.9% in February, after 5.8% in January, 5% in December, 4.9% in November, 4.1% in October, 3.4% in September and 3.0% in August 2021. This strong and lasting wave of inflation adds pressure on the quantitative easing and purchases assets program of the European central bank, accused of reducing the purchasing power of the euro currency.
Gold prices hit $ 1,934 per troy ounce today, at 08:28 AM NY Time, gaining 0.48%. Silver prices hit $25.09 per ounce, gaining 0.69%.
On February 22, gold prices reached $ 1,913 per troy ounce and stabilized at $ 1,899 at closure time. Silver prices had hit $24.14 per ounce, gaining 0.89%.
Read also : How to invest in gold
The yellow metal has always been a great hedge against inflation because it rises in price when the cost of living standards rises. Gold can store value efficiently, when paper currency loses purchasing power because of inflation.
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© Copyright 2022 – Swann Collins, investor, writer and consultant in international affairs.