FRANKFURT--The following is the full text of Christine Lagarde's
monetary policy statement to the press, as provided on the ECB
Christine Lagarde, President of the ECB
Luis de Guindos, Vice-President of the ECB
Frankfurt am Main, Oct. 28, 2021
Good afternoon, the Vice-President and I welcome you to our
The euro area economy continues to recover strongly, although
momentum has moderated to some extent. Consumers continue to be
confident and their spending remains strong. But shortages of
materials, equipment and labour are holding back production in some
sectors. Inflation is rising, primarily because of the surge in
energy prices but also as the recovery in demand is outpacing
constrained supply. We foresee inflation rising further in the near
term, but then declining in the course of next year.
Market interest rates have increased since our last meeting in
early September. However, overall financing conditions currently
remain favourable for firms, households and the public sector.
Favourable financing conditions are essential for the economy to
continue its recovery and to counter the negative impact of the
pandemic on the inflation path.
We continue to judge that favourable financing conditions can be
maintained with a moderately lower pace of net asset purchases
under the pandemic emergency purchase programme (PEPP) than in the
second and third quarters of this year.
We also confirmed our other measures, namely the level of the
key ECB interest rates, our forward guidance on their likely future
evolution, our purchases under the asset purchase programme (APP),
our reinvestment policies and our longer-term refinancing
operations, as detailed in the press release published at 13:45
today. We stand ready to adjust all of our instruments, as
appropriate, to ensure that inflation stabilises at our two per
cent target over the medium term.
I will now outline in more detail how we see the economy and
inflation developing and will then talk about our assessment of
financial and monetary conditions.
The economy continued to grow strongly in the third quarter,
even though momentum moderated to some extent. We still expect
output to exceed its pre-pandemic level by the end of the year.
The grip of the pandemic on the economy has visibly weakened,
with restrictions being lifted as a result of successful health
measures and large numbers of people now vaccinated. This is
supporting consumer spending, especially on entertainment, dining,
travel and transportation. But higher energy prices may reduce
purchasing power in the months to come.
The recovery in domestic and global demand is also supporting
production and business investment. That said, shortages of
materials, equipment and labour are holding back the manufacturing
sector. Delivery times have lengthened considerably, and transport
costs and energy prices have surged. These constraints are clouding
the outlook for the coming quarters.
The labour market continues to improve. Unemployment has fallen
and the number of people in job retention schemes is down
significantly from the peak last year. This supports the prospect
of higher incomes and increased spending. But, both the number of
people in the labour force and the hours worked in the economy
remain below their pre-pandemic levels.
To sustain the recovery, targeted and coordinated fiscal support
should continue to complement monetary policy. This support will
also help the economy adjust to the structural changes that are
under way. An effective implementation of the Next Generation EU
programme and the "Fit for 55" package will contribute to a
stronger, greener and more even recovery across euro area
Inflation increased to 3.4 per cent in September. We expect it
to rise further this year. But while the current phase of higher
inflation will last longer than originally expected, we expect
inflation to decline in the course of next year.
The upswing in inflation largely reflects a combination of three
factors. First, energy prices - especially for oil, gas and
electricity - have risen sharply. In September, energy inflation
accounted for about half of overall inflation. Second, prices are
also going up because recovering demand related to the reopening of
the economy is outpacing supply. These dynamics are especially
visible in the prices of consumer services, as well as the prices
of goods affected most strongly by supply shortages. And finally,
base effects related to the end of the VAT cut in Germany are still
contributing to higher inflation.
We expect the influence of all three factors to ease in the
course of 2022 or to fall out of the year-on-year inflation
calculation. As the recovery continues, the gradual return of the
economy to full capacity will underpin a rise in wages over time.
Market and survey-based measures of longer-term inflation
expectations have moved closer to two per cent. These factors will
support underlying inflation and the return of inflation to our
target over the medium term.
The recovery continues to depend on the course of the pandemic
and further progress with vaccinations. We see the risks to the
economic outlook as broadly balanced. In the near term, supply
bottlenecks and rising energy prices are the main risks to the pace
of recovery and the outlook for inflation. If supply shortages and
higher energy prices last longer, these could slow down the
recovery. At the same time, if persistent bottlenecks feed through
into higher than anticipated wage rises or the economy returns more
quickly to full capacity, price pressures could become stronger.
However, economic activity could outperform our expectations if
consumers become more confident and save less than currently
Financial and monetary conditions
Growth and medium-term inflation dynamics still depend on
favourable financing conditions for all sectors of the economy.
Market interest rates have increased. Nevertheless, financing
conditions for the economy remain favourable, not least because
bank lending rates for firms and households remain at historically
low levels. While there was a pick-up in September, lending to
firms remains moderate. This continues to reflect the fact that
firms generally need less external funding, since these have high
cash holdings and are increasingly retaining their earnings.
Lending to households remains strong, driven by demand for
mortgages. Our most recent bank lending survey shows that credit
conditions for firms stabilised and were supported - for the first
time since 2018 - by a reduction in banks' risk perceptions. By
contrast, banks are taking a slightly more cautious approach to
housing loans and have tightened their lending standards for these
loans accordingly. Bank balance sheets continue to be supported by
favourable funding conditions and remain solid.
Summing up, the euro area economy continues to recover strongly,
although at a more moderate pace. Rising energy prices, the
recovery in demand and supply bottlenecks are currently pushing up
inflation. While inflation will take longer to decline than
previously expected, we expect these factors to ease in the course
of next year. We continue to foresee inflation in the medium term
remaining below our two per cent target. Our policy measures,
including our revised forward guidance on the key ECB interest
rates, are crucial to helping the economy shift to a sustained
recovery and, ultimately, to bringing inflation over the medium
term to our target.
We are now ready to take your questions.
(END) Dow Jones Newswires
October 28, 2021 09:14 ET (13:14 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.