ECB closely monitoring inflation expectations, Lagarde says

div classBodysc17zpet90 cdBBJodivpFRANKFURT Reuters – Measures of underlying inflation in the euro zone have risen above the European Central Banks 2 target and the ECB is closely monitoring inflation expectations, its president Christine Lagarde said on Thursday.p

pShe said upside risks to the inflation outlook had intensified, especially in the near term.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pHeadline euro zone inflation hit a record high 7.5 last month, nearly four times the ECBs target, and price growth could accelerate for several months before peaking around midyear as the war in Ukraine pushes up energy and some food prices.p

p“Measures of underlying inflation have risen to levels above 2 in recent months,” Lagarde told a news conference, adding that it was uncertain how persistent the rise would prove.p

p“While various measures of longerterm inflation expectations derived from financial markets and from expert surveys largely stand at around 2, initial signs of abovetarget revisions in those measures warrant close monitoring.” p

pWith much of the recent inflation driven by an external energy shock related to the war, price growth is likely to fall back on its own over time, especially since wage growth, a precondition for durable inflation, remains muted. p

pBut longerterm inflation expectations have started to move higher, raising fears they may become “unanchored”, a phenomenon that worries policymakers as it suggests a loss of credibility. p

p“The last thing that we want to see is inflation expectations at the risk of deanchoring,” Lagarde said.p

pWage growth is also likely to follow, especially since the unemployment rate is at a recordlow 6.8 and labour shortages have started to emerge.p

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pp Reporting by Balazs Koranyi Editing by Catherine Evans and John Stonestreetp

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