Lagarde: Price Pressures Remain "Strong"

Lagarde turns to the labor market and inflation:

• Government support measures to shield the economy from higher energy prices should be temporary and targeted. As the energy crisis become less acute it is important to start rolling these measures back promptly in line with the fall in energy prices. Any such measures falling short of these principles are likely to drive up medium term inflation pressures which would call for a stronger monetary policy response.
• Market based indicators suggest energy prices in the coming years will be significant lower than expected at the time of the last GC meeting. Food price inflation has edged higher as the previous energy price surge is still feeding through to consumer prices.
• Price pressures remain strong. Partly because high energy costs are spreading through the economy.
• Other indicators of underlying inflation are still high. Government measures to compensate households for high energy prices will dampen inflation in 2023 but are expected to raise inflation once they expire. The scale of some of these measures depends on the evolution of energy prices.
• Supply bottlenecks are easing but their delayed effects are still pushing up goods price inflation. The same is true of the lifting of pandemic restrictions.
• Wages are growing faster supported by robust labour markets and catch-up with inflation. Recent data on wage dynamics have been in line with the December eurosystem staff projections.
• Measures of longer term inflation expectations stand at around 2% but these warrant continued monitoring.