Skip to content

EU News: Bloc reeling from inflation warns high prices will persist | World | News

Philip Lane, the European Central Bank’s chief economist, warned that “Europe may have to get used to higher prices”, as inflation rages around the world. It comes as the war in Ukraine has exacerbated already rising inflation rates across the continent. While Mr Lane said the inflation rate would lose “momentum” and “fade” over time, he warned that higher prices would not “reverse”.

He said: “Obviously inflation is a big problem across Europe, of course.

“And how to respond to this, the implications of fiscal policy, the implications of wage negotiations, the implications of demand, and so on – these are very important issues right now.

“But this relates to the second issue, which is – for us and everyone else – how long is this episode?

“This is where we’re still going to diagnose that this is essentially an import inflation shock, it’s a supply shock.

“And for this reason we’re still going to maintain – by the way, I don’t think that’s unique to the ECB, it’s the general economics profession – that most of this inflation will fade away.

“Fading away from inflation does not mean that these high prices will reverse.”

Speaking to Politico, he warned: “Europe may have to get used to higher prices.

“But the momentum – where every month you wake up and read that inflation is higher than the previous month – that element, the momentum element, we think is going down.

READ ALSO: Ukraine Conflict Destroys German Economic Confidence

But leading economists have questioned their projections, with Société Générale economist Anatoli Annenkov suggesting that they are too positive for political reasons.

He said: “The ECB felt the need to sound more positive on growth given that they have a real inflation problem.

“They should stick to the stimulus withdrawal plan to prop up inflation expectations while hoping to avoid a recession.”

This comes as the war in Ukraine – and the resulting sanctions against Russia – send shockwaves around the world.

The Center for Economics and Business Research (CEBR) estimates that the sanctions will cut the UK’s standard of living by £2,500 per household.

It is also estimated that growth in the UK this year will halve, down from an earlier forecast of 4.2 per cent in 2022 to 1.9 per cent.

Its growth forecast for 2023 has also been lowered from 2.0 percent to 0.0 percent.