MNI BRIEF:Direction Of Inflation Shocks Harder To Call-Lagarde
MNI (FRANKFURT) - High levels of geopolitical and economic uncertainty make it much harder to predict the direction of inflationary shocks, European Central Bank, President Christine Lagarde said on Wednesday, reaffirming the need for a robust commitment to the ECB price target.
While structural factors like ageing and digitalisation will probably be disinflationary, trade fragmentation and higher defence spending could push up inflation, even as U.S. tariffs potentially lower demand for EU exports and excess capacity from China is redirected into Europe, Lagarde told the ECB Watchers conference in Frankfurt.
Fresh shocks could also feed into inflation more directly, given the eurozone’s openness to trade and dependence on energy imports, and inflation could become more persistent, she said. While policymakers may not always be able to ensure inflation at the 2% target, they "must pay particular attention to anchoring inflation expectations,” she said. (See MNI ECB WATCH: Cuts 25BP, Direction No Longer Clear)