From The Associated Press
The European Central Bank chief could offer further clues on Thursday as to when the bank will start raising interest rates, amid mounting pressure to follow the United States, the United Kingdom and other countries in taking a harder line to combat soaring consumer prices .
People across the 19 countries that use the euro currency have seen the cost of everything from food to fuel soar as inflation has soared to an annual rate of 7.5% over the last month , the highest since statistics began in 1997.
Boosted by energy prices that have soared ever higher since Russia invaded Ukraine, record inflation has drawn attention to when the European Central Bank will take more drastic steps to control excessive price hikes for consumers.
The bank said on Thursday that the latest economic data confirmed its expectations of ending its efforts to stimulate the pandemic later this year and that the exact timing would depend on the economic situation. The bank has promised that a rate hike will only come after the end of its stimulus package.
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Last month Bank President Christine Lagarde opened the door a crack to a rate hike. She will speak later on Thursday.
“Inflationary pressures have intensified across many sectors,” the bank said, adding that it was “ready to adjust all of its instruments” as the situation might require. The economic prospects depended heavily on the course of the war in Ukraine and the resulting sanctions against Russia.
The war has pushed inflation to unexpectedly high levels. Oil and gas prices have risen amid fears of a shutdown by Russia, the world’s largest oil exporter, and the recovery from the COVID-19 pandemic, which is boosting demand for fuel.
With inflation picking up around the world, the US Federal Reserve raised its short-term benchmark interest rate last month and indicated that it will raise it sharply again this year. The Bank of England has raised interest rates three times since December.
But the European Central Bank is in a different situation. Economists say much of US inflation is homegrown – a side effect of massive government stimulus and support spending during the pandemic. Inflation in Europe, on the other hand, is largely imported from higher oil prices, which are generally beyond the reach of interest rate policies controlled by central banks.
In addition, higher inflation and supply bottlenecks weigh on economic growth and lead to so-called “stagflation”. This phenomenon is a combination of slow growth and high inflation, and poses a dilemma for central banks: the rate hikes needed to fight inflation could also hurt growth and jobs.
The emphasis on consumer spending power has helped French presidential candidate Marine Le Pen, a far-right nationalist, close the election campaign ahead of the April 24 runoff against centrist incumbent Emmanuel Macron.
Inflation in Europe is expected to fall next year. How much of the current inflation will be built into the economy over the long term is an open question.
Lagarde could emphasize the ongoing risks to the economy and sooner or later slightly shift its position towards a possible hike – without making a clear commitment, analysts say.
According to Holger Schmieding, chief economist at Berenberg Bank, important findings could be “another indication that the ECB could raise interest rates later this year”.
Lagarde tweeted on April 7 that she had tested positive for COVID-19 and was experiencing mild symptoms. It remains to be seen whether she will hold her press conference in person at the bank’s headquarters in Frankfurt, Germany, or remotely.
The ECB’s key interest rates are at record lows: zero on lending to banks and minus 0.5% on bank deposits, a penalty rate designed to urge them to lend the money instead.
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