FRANKFURT — While eurozone inflation will decline significantly next year, it might not return to the European Central Bank’s 2 percent target, ECB President Christine Lagarde suggested on Friday.
“We see inflation as a hump and the hump eventually declines,” Lagarde told attendees at a Reuters Next conference. “It will decline over the course of 2022, and we see it going towards our target in the course of 2022.”
However, when pressed on whether inflation will hit target next year, Lagarde declined to tip her hand, saying only she’s “a bit prudent” — and pointed to a slew of factors that complicate projections.
Lagarde said she still expects net bond purchases under the ECB’s crisis program, the pandemic emergency purchase program (PEPP), to end in March. But she underlined that the ECB will continue to actively to support growth and medium-term price stability. “We are not without ammunition,” she said, pointing to reinvestment of bond purchases as well as the remaining APP program.
The ECB’s Governing Council is set to discuss the future of PEPP and bond buying more broadly at its December meeting. Asked whether policymakers should be cautious about making policy decisions beyond the immediately necessary one on PEPP, Lagarde said the December meeting should “give some clarity.”
“Otherwise we just add uncertainty to uncertainty,” she said, while adding this does not mean that central bank will make long-term commitments that will tie its hands.
However, Lagarde did affirm her longer term projection on interest rates, calling it “very unlikely” the ECB will hike rates in 2022. “If we were act shortly, we would choke the growth we are seeing,” she said.