Lagarde: Financial Developments And Inflation Inform Each Other

Lagarde reiterates the ECB sees no tradeoff between price stability and financial stability, though financial developments inform their assessment of inflation.

• Q: Could you foresee a situation where the outlook for inflation requires further rate increases, but that creates a risk of increasing financial stress? Given that underlying inflation is a key factor you are looking at, does that mean until you see an easing of most underlying measures of inflation you will not be able to stop raising rates?
• A: We don’t see any trade off between price and financial stability. They inform each other, but we handle them separately.
• It is pretty obvious that when the inflation outlook is being assessed in light of incoming data, that the financial data will inform our assessment of inflation. Through those financial data we are taking into account developments in financial markets and financing in the economy at large.
• As long as we see the underlying component of inflation going up, this is not going to stop our fight against inflation. We will need to receive confirmation on the underlying component of inflation that we are heading towards our 2% target.