Bank

World central bank chiefs say they must prioritize fighting inflation over growth

Band Balazs Koranyi

SINTRA, Portugal, June 29 (Reuters)Reducing high inflation around the world will be painful and could even dent growth, but must be done quickly to prevent rapid price growth from taking hold, the world’s top central bankers said on Wednesday.

Inflation hits multi-decade highs around the world as soaring energy prices, post-pandemic supply chain bottlenecks and, in some cases, scorching labor markets drive up the cost of everything and threaten to trigger a hard-to-crack wage – price spiral.

“The process is very likely to involve some pain, but the worst pain would be not to fight this high inflation and let it persist,” US Federal Reserve Chairman Jerome Powell said at the conference. Annual Meeting of the European Central Bank in Sintra, Portugal.

Echoing Powell’s remarks, ECB President Christine Lagarde said the low inflation of the pre-pandemic era would not return and the ECB, which has consistently underestimated price growth, needed to act. now as price growth is expected to remain above the 2% target for years to come.

RISKS

A tightening of engineering policy to avoid a recession in the United States is certainly possible, Powell said, adding that the path was narrow and there were no guarantees of success.

“Is there a risk that we’re going too far? There is definitely a risk, but I would disagree that it’s the biggest risk to the economy,” he said. he declares. “The biggest mistake to make, let’s put it this way, would be not to restore price stability.”

Augustin Carstens, chief executive of the Bank for International Settlements, an umbrella group of central banks, said policymakers had taken the first step by acknowledging they had a problem. Now their job was to tighten the policy, as the risks grew.

“They should try to prevent the complete transition from a low inflation environment to a high inflation environment where this high inflation takes root,” Carstens said at the ECB meeting. “You have to stop this vicious cycle from starting.”

The ECB has already signaled rate hikes in July and September, while the Fed raised rates by 0.75 percentage points in June and may opt for a similar move in July.

The Bank of England raised rates by 25 basis points to 1.25% this month – his fifth consecutive move –and said he would act “more forcefully” in the future if he saw more persistence in inflation.

“There will be circumstances where we will have to do more,” BoE Governor Andrew Bailey told the conference. “We’re not there yet for the next meeting. We’re still a month away, but it’s on the table.”

“But you shouldn’t assume that’s the only thing on the table,” he said, referring to another 25 basis point hike.

However, Bailey also warned that the UK economy was now clearly at a turning point and starting to slow down.

(Additional reporting by William Schomberg, Ann Saphir, Howard Schneider and Linsday Dunsmuis Editing by Gareth Jones)

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