Low inflation era is over, says ECB chief
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Finally some better news in the fight against inflation. Germany reported today that the CPI fell from 8.7 percent last month to a better-than-expected 8.2 percent in the year to June, aided by government measures such as fuel tax cuts and a special discount on public transport.
The data was not a turning point, “but rather proof that at the moment it is governments and not central banks that can cut inflation,” said Carsten Brzeski, head of macro research at ING.
The news contrasted sharply with data from Spain earlier in the day, which showed prices rose the fastest in 37 years, reaching 10 percent in June, driven by sharp increases in energy and food. The underlying interest rate, excluding these two volatile items, reached 5.5 percent, the highest level in the country since 1993.
Prime Minister Pedro Sánchez has announced proposals to expand Spain’s €16 billion bailout package and increase it by €9 billion, including cuts in electricity taxes and public transport costs, assistance for retirees and one-off payments for lower incomes.
The easing of inflationary growth in Germany will be cautiously welcomed by European Central Bank policymakers at their central bank forum in Sintra, Portugal.
Yesterday, ECB President Christine Lagarde hardened his message on inflation, saying the central bank would act “with determination and perseverance”, especially if consumer and corporate price expectations rose sharply.
Today, she added:“I don’t think we’re going to go back to that low inflation environment. † † powers have been unleashed. † † what we are now confronted with will change the image and landscape in which we operate.”
Inflation data for the combined eurozone is expected to hit a new all-time high of 8.3 percent when released on Friday.
The ECB plans to raise interest rates in July for the first time since 2011, starting with a quarter of a percentage point increase, followed by a larger hike in September. However, the new tool to tackle the fragmentation of the eurozone’s financial markets could spark another crisis if it falls short, commentator Megan Greene said.
US Federal Reserve Chairman Jay Powell spoke too during a panel discussion in Sintra ahead of tomorrow’s key personal consumption expenditure data, the Fed’s preferred measure of inflation.
Powell said the US economy was in “excellent shape”, but warned: “If you look at the broad scope of short-, medium- and long-term expectations, you would still say we are credible. [and] that they are well anchored, but here is a clock running.”
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