ECB will act ‘at the right time’ to achieve inflation goal but only gradually, Lagarde says

European Parliament told that inflation is ‘likely to remain elevated’

ECB President Christine Lagarde told the European Parliament on Monday that inflation is "likely to remain elevated for longer than previously expected," but to decline in the course of this year.

The ECB remained “committed to delivering on our price stability mandate” but officials won’t rush and any adjustment to policy would be “gradual,” Ms Lagarde stressed.

Ms Lagarde said the bank will take action “at the right time” to achieve its 2 per cent inflation goal over the medium term.

"We are very aware that many people across the euro area are concerned about the rising cost of living at the moment… And the burden is primarily borne by those with lower incomes, who must face the day-to-day hardship of having to cope with higher prices," she said in Strasbourg.


However, Ms Lagarde told lawmakers the bank needed to be “open about what we can and cannot do as a central bank”.

“For example, our monetary policy cannot fill pipelines with gas, clear backlogs at ports or train more lorry drivers,” she said.

Significant difficulties

Fianna Fáil MEP Billy Kelleher said "all eyes" were on the ECB, which alongside the European Banking Authority, had "an obligation to unleash the blockages that are causing significant difficulties for some countries in keeping interest rates low."

"In the event of there being a necessity to raise interest rates to address the issue of inflation, I want you to take into account that we do not have uniform interest rates across the European Union, " he said.

"I significantly mention Ireland itself, where the capital requirements and obligations on our banks are looking at it through the prism of the last financial crisis. I would urge you to act on this in the event of interest rates having to rise, because this would have a profound impact on Ireland and other countries that have higher interest rates than the EU average," he said.

Energy prices continue to be the main reason for the elevated rate of inflation and are pushing up prices across other sectors.

Inflation has risen sharply in recent months and it further surprised on the upside in January, with the rate increasing from 5.1 per cent from 5.01 per cent in December.

Food prices have also increased due to seasonal factors, and higher cost of transportation and fertilisers. Survey-based measures pointed to inflation returning to two per cent by 2023.