There is a meeting of the European Central Bank next Thursday, June 9. Christine Lagarde should take the opportunity to give a course, a horizon, a timetable, or even an order of magnitude, but the rate hike is not yet for now, rather in July, when prices are n don’t stop flaming.
Inflation reached 8.1% in May in the euro zone. This average hides very significant disparities. With a price increase of 20% in Estonia, 5% in Malta, more than 10% in Greece and the Netherlands, 8% in Germany and 5.8% in France according to the harmonized price indicator.
Keeping inflation around 2% is part of the ECB’s mission. Other central banks did not wait. In the United States, the Fed has already raised its rates several times. And the Central Bank of England has raised its key rate to 1%.
So why wait? So as not to panic, because the rise in prices in Europe is not linked to an overheating of demand as is the case in the United States. In Europe, inflation is closely linked to the war in Ukraine and the resulting spike in energy prices. The ECB did not want to nip in the bud the post-Covid recovery in activity, a vigorous post-pandemic growth.
The monetary institution cannot procrastinate any longer. Because inflation is racing and the markets have anticipated the upcoming rate hike. Just look at the surge in mortgage rates. And then it is necessary at all costs to break the infernal price-wage spiral. Just about everywhere legitimate wage demands are multiplying to ask for wage increases.
In Germany, the powerful metallurgy union IG Metall is demanding an 8% rise. The ECB has no choice but to raise its rates. Hoping that this increase will have the expected effects: to break inflation without penalizing growth too much. As we have seen over the past two years, economic models are only viable on paper.