European Central Bank President Christine Lagarde has indicated that high energy prices are beginning to transmit into other sectors of the economy. She stated, "In recent weeks, we have started to see the indirect effects of inflation almost everywhere."
The ECB raised interest rates last week for the first time since 2023, as the conflict in the Middle East has intensified price pressures. Officials have not ruled out a second consecutive rate hike at the July meeting. Policymakers, including Bundesbank President Joachim Nagel, have noted that prices could remain elevated even if the conflict in Iran concludes swiftly.
However, the increase in borrowing costs has raised concerns among some ECB observers regarding the potential impact on the economy.
"I hear the criticism—often from France, and I understand it—that says 'we are taking measures that will strangle economic growth'," Lagarde remarked. "But I must curb inflation if it awakens, because once inflation gets out of control, it becomes more difficult and costly to rein in. A prolonged period of high inflation is unacceptable for both consumers and businesses, and I would be failing in my mandate."
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