The ECB will not allow itself to be urged by the rise in inflation rates

The European Central Bank (ECB) will not allow itself to be urged by the sharp rise in inflation rates to exit the policy of cheap money more quickly. "We do not take this phase of higher inflation lightly," said ECB boss Christine Lagarde during a banking congress in Frankfurt. The central bank should "not go over to an early tightening of monetary policy in view of temporary or supply-related inflation shocks," said Lagarde. "At a time when purchasing power is already being reduced by higher energy and fuel costs, inadequate tightening would mean an unjustified headwind for the upswing." The inflation rates have been climbing for months. In Germany, for example, consumer prices in October were 4.5 percent above the level of the same month last year. Inflation in Europe's largest economy is as high as it was 28 years ago. In the euro area, too, the inflation rate of 4.1 percent in October was well above the medium-term target of 2 percent set by the ECB. "This inflation is undesirable and painful - and there are of course concerns about how long it will last. We take these concerns very seriously and are carefully monitoring developments," said Lagarde. "In particular, we recognize that higher inflation is depressing people's real incomes, especially those at the lower end of the income distribution." Lagarde, however, reiterated the central bank's view that a large part of the surge in inflation can be explained by special factors that should gradually weaken again over the next year. The monetary authorities name, for example, the recovery in oil prices after the corona shock and delivery bottlenecks as a result of increased demand. In addition, the withdrawal of the temporary VAT cut is having an impact in Germany. According to Lagarde, the ECB will continue to support the economy even after the acute pandemic has ended. This also applies with a view to the "appropriate adjustment" of the bond purchases operated by the ECB, said the Frenchwoman. "We will announce our intentions in December," she added. Lagarde once again clearly rejected a turnaround in interest rates in the coming year, despite the current rise in inflation. Many economists and bankers warn against underestimating the current inflation trend. Some accuse the ECB of using cheap money to fuel inflation, which it actually wants to keep in check. "We are determined to ensure that inflation stabilizes at our target of 2 percent in the medium term," emphasized Lagarde. "Today inflation is largely driven high by the extraordinary circumstances created by the pandemic." Monetary policy must therefore "remain patient and persistent," said the ECB President.