ECB President Christine Lagarde said in a Nikkei interview, “we are determined to tame inflation, to bring it back to our 2% medium-term target in a timely manner.” She acknowledged that “we have made a sizable adjustment already. But we still have more ground to cover”.
Highlighting the importance of data, Lagarde said, “Our reaction function will be anchored in the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, and this will dictate our decisions going forward.”
She emphasized ECB’s focus on headline inflation as the critical measure to ensure price stability. “That’s our thermometer, that’s what we are committed to doing,” she stated.
However, Lagarde also pointed to the relevance of additional inflation measures. “Core” inflation is one such measure, but others exist, such as those that exclude more volatile items or focus more on domestic inflation pressures.
She explained, “It’s to arrive at the ‘heart’ of inflation, the most persistent element in those price indexes that can help us understand where headline inflation is likely to settle in the medium term.”
Lagarde cautioned that significant upside risks to inflation outlook still exist, and the path of inflation remains uncertain. Therefore, she stressed the need for the ECB to be “extremely attentive to those potential risks.”