Don’t be overly concerned about exporting inflation to Europe

The ECB is “not overly concerned” about inflation risks from abroad and will continue to cut interest rates at a gradual pace, European Central Bank President Christine Lagarde told CNBC on Wednesday.

In response to a question about the potential impact on Europe if inflation returns to rise in the United States, Lagarde said: “If inflation returns to the United States, it will certainly be a problem for the United States, and that is where the first and main consequences will be.” “.

“We’re not too worried about exporting inflation to Europe,” she told CNBC’s Karen Tso.

“There will be an interesting phenomenon that we will monitor. The exchange rate, for example, will be of interest, and it may have consequences, but we are certainly interested in seeing the United States grow, because growth in the United States has always been a positive factor for the rest of the world,” she added.

The ECB President stressed that policymakers are confident that inflation will reach the central bank’s 2% target over the course of 2025, and that the process of slowing inflation will continue. The annual inflation rate in the euro area reached 2.4% in DecemberRecording a third consecutive monthly increase after reaching a low of 1.7% in September.

Lagarde also said that “markets expect vastly different moves in monetary policy in the next few months” from the US and the eurozone, as the European Central Bank and the Federal Reserve “have not cut interest rates at the same pace.”

“We have this difference, which has to do with the different economic situation at the moment between the United States and Europe,” she noted.

This comes as the European Union faces lackluster growth, with Germany, its largest economy, recording weak growth
The second in a row Annual GDP contraction In 2024.

However, Lagarde described the risks to growth as “negative.”

She said the central bank would closely monitor services, energy, wages and so-called “lagging” factors such as insurance to see if early 2025 achieves the gradual reduction in service prices it expects.

The central bank chief also described the much-debated “neutral rate” – the point at which monetary policy neither stimulates nor constrains the economy – as between 1.75% and 2.25%. In December, it indicated that this range was between 1.75% and 2.5%.

While headline price growth in the euro area has declined from a peak of 10.6%, services inflation has been particularly flat, hovering near the 4% level since November 2023.