Lagarde urges ECB to have ‘more confidence’ in disinflationary process

Process curbing price growth in the eurozone will continue throughout the year, after inflation stood at 2.8% in January, one-tenth less than at the end of 2023, but the Governing Council of the European Central Bank (ECB) must be confident that will lead to sustainable achievement of the 2% targetThis was stated by the organization’s president Christine Lagarde.

In her speech to the European Parliament’s Economic and Monetary Affairs Committee, the Frenchwoman pointed to the eurozone’s stagnation in the last quarter of 2023, adding that while incoming data continues to point to moderate activity in the short term, some indicators point to recovery within next year.

Regarding the evolution of prices, Lagarde emphasized that Core inflation is gradually decliningalthough the services component is showing signs of resilience, while wage growth remains strong and is expected to become an increasingly important driver of inflation dynamics in the coming quarters.

In this sense, he recalled that advanced salary tracker ECB continues to indicate strong wage pressures, although agreements reached indicate some stabilization in the last quarter of 2023, so wage pressures in 2024 are particularly dependent on the outcome of current rounds of negotiations.

“Overall, the latest data confirms the ongoing process of deflation and is expected to lead us gradually downward throughout 2024,” the ECB President said. “We don’t want to risk it being cancelled.It would be a waste of everything we have done and would force us to take even more measures,” Lagarde defended in her speech. “Then we need more confidence. And that confidence will come as a result of the data that we will continue to receive, collect and analyze to really ensure that we are moving in that direction,” he added.

Banking sector

On the other hand, the ECB President assured that the bloc is now “much better prepared” in the face of a possible crisis, since the banking system is stronger, better structured, better capitalizedhas more liquidity, more tools to measure these levels and is better controlled.

In this sense, Lagarde recalled that the eurozone banking sector withstood the shock test that was the regional banking crisis in the United States last spring, with the closure of businesses such as Silicon Valley, Signature or the First Republic, in addition to the collapse of credit policy. Switzerland in Europe.

From this episode, according to the Frenchwoman, one can highlight the work of the European supervisory authority SSM, which warned European organizations in advance about the interest rate risk associated with a change in the direction of monetary policy. “I think it is sometimes fashionable to criticize or question unified supervision. But I think that on March 23 we saw that the presence sole supervisionthat all European banks were covered by Basel III requirements and adequately supervised, I think it was real advantage“, he defended himself.

Thus, according to Lagarde, the CSM has fulfilled its mission, and the European banking system has become better prepared and stronger, although she regretted that the situation in the face of future crises “would be much better if the banking union had been completed” In addition to the capital markets union, “which everyone talks about and brags about, but nothing happens,” which for the Frenchwoman represents “two big elephants in the room.”