The European central bank manager sees a more volatile inflation when global uncertainty grows: “It is quite fundamental, but that’s the reality”



The head of the European Central Bank said that inflation was due to shocks such as the Covid 19 pandemic and the invasion of Ukraine by Russia in Ukraine by Russia-more unpredictable and that the political decision-makers take into account the possibility of such an extreme scenarios and also have to tell them to the public.

“The upcoming world is uncertain, and this uncertainty will probably make inflation more volatile,” said ECB President Christine Lagarde on Monday in a speech that opened the annual conference of the central bank in Sintra, Portugal. “It’s pretty fundamental, but that’s the reality.”

One reason, she said, was that companies increasingly caused companies to change their prices more often, a habit that goes beyond the latest inflation in the United States and in Europe and “reflects a structural shift of the way in which companies work permanently under conditions”.

The bank’s assessment of the economy must rely on the fact that extremely possible scenarios and the more likely basic predictions are taken into account, and the public should also reach the public via these possible results, she said. In particular, Lagarde quoted the tip of the inflation, which followed according to Russia’s invasion of Ukraine, in which a basic scenario based on higher energy prices for 2022 of 5.5%-a worst-case scenario showed more than 7% inflation, much closer to the last illustration of 8%.

Another example was the pandemic, in which the expenditure of domestic consumers of services such as restaurants, such as home training, changed.

“The scenario analysis could have helped to illustrate that the possibility of the possible inflation results was unusually wide – and the risk of false certainty would have reduced the public,” said Lagarde.

The bank’s strategy check announced that on Monday its 2% target was confirmed for inflation. A goal that she has achieved for the time being because the annual price increases in May was 1.9%. The bank of the inflation has caused the bank to reduce its benchmark interest rate from 4% to 2%.

The threats with higher tariffs of US President Donald Trump have increased uncertainty about the prospects of growth and inflation. The European Commission and the US negotiators try to reach an agreement on a trade agreement on July 9.

The conference in Sintra is the ECB equivalent of the US Federal Reserve Assembly in Jackson Hole, Wyoming, and gathers with top central bankers and economists from all over the world. The chairman of Fed, Jerome Powell, is to take part in a committee



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