Lagarde: No return to era of low inflation

THE world’s leading central bankers warned that the era of low inflation and easy money was over as they stepped up the fight against soaring prices.

As official figures showed inflation in Spain at a 37-year high of 10.2pc, US Federal Reserve chairman Jerome Powell, Bank of England Governor Andrew Bailey and European Central Bank (ECB) president Christine lagarde hinted more aggressive interest rate rises may be needed even as the global economy slows.

Bailey, who has been accused of being too cautious in his approach to rate hikes with inflation in the UK heading towards 11pc, said the Bank has ‘the option’ of acting more forcefully. The Bank has raised rates five times since December, from 0.1pc to 1.25pc, but never by more than 0.25 percentage points.

By contrast, the Federal Reserve has raised rates three times since march, by 0.25 percentage points, 0.5 percentage points and 0.75 percentage points.

Speaking alongside Powell and lagarde in Portugal, Bailey said yesterday: ‘There will be circumstances in which we will have to do more.

‘We’re not there yet in terms of the next meeting. We’re still a month away, but that’s on the table.’ Powell warned that bringing down high inflation will be painful, hitting economic output and jobs.

‘The process is highly likely to involve some pain but the worst pain would be from failing to address this high inflation and allowing it to become persistent,’ he said.

He repeated his hope that the Federal Reserve can raise rates enough to tackle inflation without causing a recession – a socalled ‘soft landing’.

But he added: ‘Is there a risk that we would go too far? Certainly there’s a risk, but I wouldn’t agree that it’s the biggest risk to the economy.

‘The bigger mistake to make – let’s put it that way – would be to fail to restore price stability.’

lagarde said the low inflation of the prepandemic era would not return as the ECB prepares for its first rate hike since 2011 – expected next month. ‘I don’t think that we’re going to go back to that environment of low inflation,’ she said.

Pointing towards the impact of Covid and Russia’s invasion of ukraine, she added: ‘There are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock that we are facing now, that are going to change the picture and the landscape within which we operate.’