The economic situation in which the eurozone currently finds itself has nothing to do with "stagflation," said European Central Bank (ECB) President Christine Lagarde. The decision to maintain interest rates was made unanimously after in-depth debate.
The difference between the current situation and the 70s
According to Lagarde, the term "stagflation" is associated with the economic events of the 1970s, when a long period of accelerating inflation and high unemployment was observed. At the moment, however:
- Lower expectations for economic growth are being observed.
- Inflation is accelerating, but without the presence of mass unemployment.
- The situation cannot be defined as a recession or stagnation.
Monetary policy and next steps
The ECB will closely follow economic processes over the next six weeks. The decision on the direction of monetary policy will be made at the next meeting in June, relying on new available data.
The main goal of the institution remains:
- Returning inflation to the target level of 2%.
- Using interest rates as the primary tool for control.
Risks to the economy
Although Lagarde does not see signs of stagflation, she highlighted two main types of risks:
- Risks to growth (downward pressure): The war in the Middle East and the potential disruption of energy supplies could lead to higher energy prices, which will reduce investments and household spending.
- Risks to inflation (upward pressure): If energy prices rise for a longer period, this could lead to a sustained increase in inflation expectations and disruptions in global supply chains.