According to an interview, European Central Bank President Christine Lagarde stated that high energy prices are beginning to spread to other sectors of the economy.
"The indirect effects of inflation, we have started to see here and there, more or less, in recent weeks," she said in an interview with a French radio station on Monday. "When we start to see second-round effects emerging — particularly the risk of wage increases — we must act. We are particularly focused on one indicator, which is underlying inflation."
Influenced by price pressures heightened by conflict in the Middle East, the ECB raised interest rates last week for the first time since 2023. Officials have not ruled out the possibility of another rate hike at the July meeting. Policymakers, including Bundesbank President Joachim Nagel, have indicated that prices could remain elevated for an extended period even if the conflict in the region ends soon.
In a separate interview, ECB Governing Council member Martins Kazaks told a news agency that the central bank is prepared to take further action to prevent the spread of high energy prices to other parts of the economy.
The rise in borrowing costs is raising concerns among some ECB observers about its impact on the economy.
"I have heard some criticism — often from France, and I understand their position — 'the measures they are taking will strangle growth,'" Lagarde said. "But if inflation rears its head, I must strangle it in the bud, because once inflation 'runs away,' it becomes much more difficult and costly to bring it back under control. Persistent inflation is unacceptable for consumers and businesses, and if I fail to do this, I have failed in my duty."
The ECB President made these remarks hours after the United States and Iran indicated they had reached a provisional agreement to reopen the Strait of Hormuz.
"If the developments in the coming days and the signing of a memorandum of understanding confirm this news, it would be good news, and we can only welcome it, especially if it means the Strait of Hormuz will be reopened and mines cleared," Lagarde said.
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