ECB President Christine Lagarde said that Russia invasion of Ukraine will have “consequences” for growth. However, “even in the bleakest scenario, with second-round effects, with a boycott of gas and petrol and a worsening of the war that goes on for a long time — even in those scenarios we have 2.3% growth.” Hence, “we are not seeing elements of stagflation now,” she said.

Lagarde also reiterated that the US and Eurozone are in “difference universes”, at a “different stage” in the economic cycle, with “different starting points”. “We in the euro area are at negative rates, while the U.S. never went below zero.”

In an interview with Handelsblatt, ECB Vice President Luis de Guindos said Eurozone is not heading towards stagflatoin. “In the most recent projections, even in our most adverse scenario for the current year, we still foresee growth of more than 2%, so no stagflation,” he said. “Inflation, however, is likely to remain higher for a longer period than expected before the war.”

De Guindos also said what matters for the central bank now is the extent to which wages respond. “If wage increases are too high, they can push prices up even more and contribute to persistently higher inflation.” But he added, “We have not seen any signs of that yet”.

He added last week’s statement “delink the potential interest rate hikes from the asset purchase programme”. The timing of rate hike “all depends on the data”. “The price shock in energy and commodities that we’re currently experiencing is making many firms and workers worse off. Fiscal policy should provide temporary, targeted support to help reduce the burden. This would also reduce the danger of a wage-price spiral,” he said.

Full interview here.

ECB Governing Council member Klaas Knot said, “At this point, the dominant worry is inflation. That is why normalization of policy, the withdrawal of stimulus is the appropriate policy response.”

He expected the asset purchases to end by the end of the year. “That means September should be available (for a rate hike),” Knot said. “Not that I expect rates will have to go up in September.”

“A rate hike in the fourth quarter to me still is a realistic expectation… but by no means a certainty, he added.

ECB President Christine Lagarde said in a speech the central has given itself some “extra space” in monetary policy by stating that rate hike will come only “some time” after ending net asset purchases.

“This maintains our traditional sequencing logic, but also gives us extra space if needed after we stop purchasing bonds and before we take the next step towards normalization,” she said. “This will allow us to test whether the convergence of inflation to our target that we project today is robust to current and potential new shocks,”

Lagarde also said the outbreak of war has ” introduced new uncertainty into the outlook”, with ” the short-term factors pushing up inflation are likely to be amplified.” Inflation out hit 5.1% on average hits year, and even exceed 7% in the “severe scenario”.

Full speech here.