- ECB President Lagarde says higher energy prices, strong demand and German VAT are behind inflation.
- Prices pressures should ease in 2022 according to Lagarde.
- The pledge to maintain favorable financing conditions is in contrast with other central banks.
Will 2022 be like 2019? That is what many people are hoping for, after nearly two years with covid. Hopes for next year also seem to guide the European Central Bank, which is why EUR/USD has room to lose its recent gains – related to weak US GDP.
ECB President Christine Lagarde cited three critical factors that have pushed inflation higher:
- Soaring energy prices: Spain's 5.5% annual inflation rate is mostly driven by a surge in natural gas prices. Other countries are struggling as well, from both gas and oil costs.
- High demand: The rebound has been stronger than expected – which is a good thing – and that should also cool down later on.
- German skew: Germany temporarily cut its Value Added Tax (VAT) rate in response to the pandemic, and its expiry has pushed prices higher. That effect should wane in early 2022.
While Lagarde acknowledges that inflation will run hotter for longer, she reiterated her stance that it will cool in 2022.
Moreover, the ECB is set to keep pumping more money into markets – by refraining from any tapering of its bond-buying scheme. The current Pandemic Emergency Purchase Program (PEPP) is set to slow down, however, a new scheme will probably be announced in December.
Perhaps the most dovish factor is Lagarde's pushback against markets' expectations of a lift-off – raising rates. She continues to categorically rejecting hikes.
Overall, rejecting inflation, tapering and rate hikes is a potently dovish mix.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.