Lagarde: “Inflation is under control. I am fulfilling my mandate, and the markets are responding”

Brussels – “I am fulfilling my mandate, I really think so, and the markets are responding.” The President of the European Central Bank, Christine Lagarde, defends her actions amid persistent rumours of her possible resignation, which she denies. “We can now see that our efforts to bring down inflation have been effective,” she claimed during the hearing in the Committee on Economic and Monetary Affairs of the European Parliament. “Inflation has fallen markedly from its peak of 10.6 per cent in October 2022,” she emphasised. This is no coincidence, she explains: inflation “fluctuated in a narrow range around 2 per cent in the second half of last year and stood at 1.7 per cent in January,” demonstrating that “the ECB’s decisive monetary policy response played a crucial role in bringing inflation back to target.”

Looking ahead, “we continue to expect inflation to stabilise at our 2 per cent target in the medium term,” the ECB President added, optimistic about the future. Of course, she admits, there are still downside risks to growth and upside risks to consumer and producer prices. There are uncertainties related to geopolitical and trade tensions, but above all, there is concern about the perceptions of households, businesses, and consumers. “Even though inflation has declined, surveys show that many citizens still perceive prices to be rising faster than the official data suggest,” and this gap between measured and perceived inflation “has implications for economic decisions and for trust in institutions,” she warns.

There is a risk that people will save, stifling consumption and removing capital from circulation that could be used for investment, which would be beneficial to the competitiveness of the EU and its eurozone. Hence, Lagarde’s call to politicians, i.e., European institutions and national governments, to explain better what they are doing, because “effective communication is essential.” Furthermore, “Europe should invest in financial education to raise financial literacy levels,” thus following up on the initiative launched by the European Commission with the Blue Book.