Lagarde Urges Common European Approach to Fighting Inflation

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(Bloomberg) — For the European Central Bank’s fight against record inflation to be successful, governments must ensure fiscal aid in response to the energy crisis doesn’t get in the way, according to President Christine Lagarde.

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Lagarde urged finance ministers to target support as much as possible so as not to interfere with ECB monetary policy. The Governing Council delivered a historic three-quarter-point interest-rate increase on Thursday after updated projections showed inflation significantly above earlier expectations through 2024.

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“The ECB can and will act decisively to make sure that high prices today don’t become entrenched and inflation expectations won’t de-anchor,” Lagarde told reporters in Prague. “Our task is not easy but we’re not acting in a vacuum.”

Governments around the 19-nation euro zone are trying to help households and companies cope with surging energy costs as a result of Russia’s war in Ukraine. While some of those measures have been focused on the poorest and most vulnerable people and strategic businesses, others have benefited large parts of society — threatening to undermine the ECB’s attempts to remove stimulus and damp demand.

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With a meeting of European energy ministers under way in Brussels, Lagarde called for “common European answers” to the challenges of the war. 

“Monetary and fiscal policy play a complementary role in fighting price pressures,” she said. “They must work hand in hand and not contradict each other.

Irish Finance Minister Paschal Donohoe, who speaks for euro-area finance ministers, said he and his colleagues “acknowledge and agree” that inflation, which hit 9.1% in August, must be reduced. 

“Failure to do so will make our citizens, the people of Europe, poorer,” he told the same news conference. “Our interventions will be coordinated with the monetary policy of the ECB. We will make all effort to avoid adding to inflationary pressure.”

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