The eurozone hit record inflation levels of 10.7% in October – the highest rate since the first statistics were taken in 1997. The figure lies far above the bank’s inflation target of 2%…reports Asian Lite News
European Central Bank President Christine Lagarde warned that the bank may have to raise interest rates beyond withdrawing stimulus, going into territory that could restrain growth.
“We expect to raise rates further, and withdrawing accommodation may not be enough,” said Lagarde at the European Banking Congress in Frankfurt.
She said the bank intended to bring inflation down “in a timely manner”, adding that “how far we need to go, and how fast, will be determined by the inflation outlook”.
The eurozone hit record inflation levels of 10.7% in October – the highest rate since the first statistics were taken in 1997. The figure lies far above the bank’s inflation target of 2%.
Many economists predict a recession at the end of this year and the start of next year, due to inflation robbing consumers of purchasing power.
Bank officials say introducing higher rates now will avoid the need for even more drastic measures later if inflation continues to run out of control.
Inflation in Europe has been intensified by high natural gas prices triggered by Russia’s cutbacks in gas supply, due to the war in Ukraine. Bottlenecks in supplies of parts and raw materials, as demand rebounds from restrictions imposed during the coronavirus pandemic, have also fuelled inflation.
In response to high inflation, the central bank has lifted its benchmarks by two full percentage points since July. Analysts expect more increases to come from a Dec. 15 meeting.
Lagarde cautioned governments against excessive spending to support consumers and businesses hit by high energy costs. She said that such financial assistance needed to be temporary and targeted at the people most in need of help.
She warned that otherwise, spending could push up demand and thus inflation, and weaken incentives for people to conserve energy.
Higher central bank interest benchmarks influence the cost of lending, raising the price of credit and making it more expensive to borrow, spend or invest, thus reducing demand for goods and, in theory, restraining prices.
While higher rates are a key tool to contain inflation, their use can raise concerns about the impact on growth. The eurozone economy grew only 0.2% in the July-September quarter.