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Inflation begins to subside in Europe and the US: Christine Lagarde explains why

Year-on-year inflation in the euro area declined more than expected in March, to 6.9%, thanks to a sharp drop in energy pricesthe European statistics agency Eurostat announced on Friday.

The data brought some peace of mind to European families, who for months have been struggling to pay their bills, fill the tank and buy food. For the president of the European Central Bank, Christine Lagarde, the figures show that it starts working the strategy of raising interest rates. Although he admitted that the economic storm has not completely receded.

In February, this indicator had frustrated expectations by registering 8.5%, after having reached a worrying peak of 10.6% last October. For March, most market analysts estimated inflation at 7.1%.

However, Eurostat data shows that pressures continue in the food segmentwhich includes tobacco and alcoholic beverages.

The head of the European Central Bank (ECB) assured this Friday that the rises in interest rates to contain inflation are “beginning to work”, although she admitted that there is still uncertainty and will continue to assess the data at each meeting.

A market in Madrid. In Spain, inflation is also low. Photo: AP

“The increases (in interest rates) are just beginning to work, the latest data show it,” he said during a meeting with students organized by the Permanent Observatory of Young Publishers in Florence (central Italy).

Lagarde pointed out that “there is still work to be done”, since “core inflation is still too high.”

According to Eurostat, the interannual rate of core inflation, which leaves food, energy, alcohol and tobacco out of the calculation due to their more volatile behavior, stood at 5.7% in March, compared to 5 ,February 6th.

The objective of the European Central Bank

“The objective is ambitious but very clear: to bring inflation to 2%,” Lagarde said, later stressing that the ECB is making decisions in a scenario of “great uncertainty” and, therefore, will evaluate the data at each meeting.

Regarding the recent turbulence in the financial markets as a result of the bankruptcies of Silicon Valley Bank and other banks in the United States, Lagarde asked “not to include the Swiss Credit Suisse and Deutsche Bank in the same category”, since the European banking system it is more “robust”.

The president of the European Central Bank, Christine Lagarde, warns that the storm has not passed.  Photo: EFE

The president of the European Central Bank, Christine Lagarde, warns that the storm has not passed. Photo: EFE

“In the United States there are 14 banks whose capital ratio is monitored, in Europe we carry out stress tests on 2,000 banks to check their capital and liquidity. And that makes a big difference,” stressed the main person in charge of European monetary policy.

According to Lagarde, what happened with the Silicon Valley Bank (SVB) is “unlikely” since the European financial system is “more robust” than before the great financial crisis and its banks are “supervised, solid and have capital strong”.

At its last meeting, the ECB raised interest rates again by 50 basis points, up to 3.5%, as planned, despite the fact that the turbulence in the financial markets raised questions about the impact of the rate hikes applied by central banks around the world on entities.

The prices in the United States

Twelve-month inflation eased in February in the United States to 5%, from 5.3% in January, according to the PCE index published Friday by the Commerce Department.

This index, the most followed by the Federal Reserve, shows that in the month-to-month measurement, the rise in prices also moderated, to 0.3%better than the 0.4% analysts expected according to the consensus compiled by

Core inflation, which excludes food and energy prices, follows the same trend, settling at 4.7% in 12 months, also below expectations.

Family income advanced 0.5%, well below the increase in January, while their expenses grew 0.2%.

The PCE index is the one preferred by the Fed to consider the increase in prices, which it expects to bring to 2% in one year, for which it has repeatedly raised its reference interest rates as a way of making credit more expensive and thus discouraging consumption and the investment.

Wall Street reacted positively to the inflation data. The Dow Jones Industrials, the main indicator of the New York Stock Exchange, gained 1.26% and closed a quarter complicated by the rise in interest rates and the banking crisis on a good note.

Source: AFP and EFE


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