ECB’s inflation target, Lagarde: “The concerns we face today are different than those in 2003”

On 1 November 2019, after almost one year of mandate, Mario Draghi was replaced by the French lawyer Christine Lagarde. Today the European Central Bank evaluates a possible change in its monetary policy choices, since one of the primary objectives defined by the Bank in its mandate – to aim for inflation below but close to 2% – could be exceeded by the events. During the conference “The ECB and Its Watchers”, Lagarde explained that the purpose of the planned objectives “was appropriate at a time when the ECB was seeking to establish credibility, and too-high inflation was its main worry”. “In the current environment of lower inflation, the concerns we face are different and this needs to be reflected in our inflation aim”, she then added.

This issue has been addressed by the Fed a few weeks ago, with the President Jerome Powell defining an inflation objective of 2% for the USA Central Bank. This was an upsetting news as this rate is not intended as a maximum limit, but rather as an average level that gives to the USA economy the possibility to let go prices increasing the world economy by way of contrast.

In light of this situation, Lagarde assured that Frankfurt will continue to guarantee its own support. In the current environment, both monetary and fiscal policies “must remain expansionary for as long as necessary to achieve their respective goals” said Lagarde, adding that this alignment between fiscal and monetary policies “raises important questions that will become even more acute in the aftermath of the pandemic”, especially as regards to how to face “possibly permanently higher levels of public debt”.

The situation of low inflation is alarming, as well as the context of high economic insecurity of the European and American countries that is affecting investors, companies and private citizens. This morning, only the quotations of Ftse Mib have increased (+0,7%), whereas European stock exchanges have slowed down compared to the past days (Frankfurt -0,14%, London +0,68%, Paris +0,89%).

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