"Should Have Acted Sooner"... Criticism of ECB's 'Delayed Response' to Inflation

Warning of Wage-Driven Inflation Crisis

As Christine Lagarde, President of the European Central Bank (ECB), warned that more work remains to tame the 'inflation monster,' there is growing self-reflection that the ECB should have taken a firmer stance earlier to control inflation.

On the 5th (local time), Otmar Issing, the ECB's first chief economist, pointed out in an interview with Bloomberg News, "Inflation in the European region was already underway before the Ukraine war," adding, "I cannot understand why the ECB ignored this risk for so long."

He argued that the ECB should have acted more swiftly and decisively to curb soaring prices. Although inflation in the European region was already alarming before Russia's invasion of Ukraine, the ECB at the time expected inflation to subside soon.

As inflation accelerated further last year, the ECB only initiated a big step (a 0.5 percentage point increase in the key interest rate) in July, marking the start of its rate hike cycle. Subsequently, it implemented giant steps (0.75 percentage point increases) in September and October, before returning to big steps three months later to slow the pace.

Although inflation has peaked, the slowdown has been delayed, making it too early to feel reassured. In February, the Eurozone (20 countries using the euro) consumer price index rose 8.5% year-on-year, surpassing Wall Street's forecast of 8.2%. While the deceleration trend continued for the fourth consecutive month, the increase narrowed by only 0.1 percentage points compared to the previous month (8.6%). The core CPI inflation rate rose to 5.6%, up from 5.3% the previous month.

He warned that "greater inflationary pressures are already underway," raising concerns about wage-driven inflation. High wages are expected to further fuel service price pressures, leading to wage-driven inflationary pressures. He noted that wage increase pressures are intensifying again, predicting, "We will soon witness wage hikes, which will lead to a new inflation shock."

The ECB implemented a big step at its monetary policy meeting on the 2nd of last month. The market expects the ECB to maintain its current tightening intensity at least through the second quarter. Given that the slowdown in inflation has fallen short of expectations, it is forecasted that the ECB will take another big step at the meeting on the 16th of this month, followed by baby steps (0.25 percentage point increases) in May and June, then hold rates steady.

However, foreign media have pointed out that if data from March and April do not confirm a significant easing of inflationary pressures, the possibility cannot be ruled out that the ECB will raise the interest rate hike in May to 0.50 percentage points.

This content was produced with the assistance of AI translation services.