For eight years, he himself had to ensure stable prices in the euro area. The fact that inflation is so persistent at the moment worries him. But Jean-Claude Trichet sees the ECB on the right course.
Former ECB President Jean-Claude Trichet is concerned about persistently high inflation in the euro area. “I’m concerned. Inflation must be brought under control again,” Trichet told the German Press Agency in Frankfurt. “We went through a phase in the 1970s when we lost control of inflation. We know what it costs to lose control of inflation. We must avoid that.”
Trichet, who was President of the European Central Bank (ECB) from November 1, 2003 to October 31, 2011 and will celebrate his 80th birthday on December 20, warned: “It is crucial to see a catastrophic unleash of inflationary pressures in Europe as well in the other advanced economies.” Trichet emphasized: “Inflation is not temporary.” Central bank vigilance is therefore more necessary than ever.
“All central banks reacted too late”
The ECB, based in Frankfurt, is aiming for price stability in the euro area in the medium term with inflation of two percent. In October, consumer prices in the currency area of the 19 countries were 10.6 percent above the level of the same month last year. After a long period of hesitation, the ECB has been bracing itself against record high inflation with sharp interest rate hikes since July. The key interest rate in the euro area, which was frozen at a record low of zero percent for years, is now 2.0 percent.
“Obviously all central banks, without exception, reacted too late in my opinion, including the Fed and the ECB,” Trichet said. In his opinion, there are a number of reasons for this: among other things, after a period of very low inflation, the view that inflation would remain low has become more firmly established.
In addition, central banks have committed themselves to a long-term outlook for their monetary policy, the so-called forward guidance. The ECB, for example, had committed itself to raising key interest rates in the euro area only after it had stopped net purchases of government bonds and other securities. “So changing direction 180 degrees was difficult,” Trichet said.
“ECB did what had to be done”
Trichet has no doubts about the determination of the central banks to curb inflation. The US Federal Reserve and the ECB have proven that after years of very expansive monetary policy, including bond purchases worth billions, they are in a position to change course.
“The European Central Bank has shown market participants, investors and savers that it takes general inflationary pressure very seriously. The ECB has made a clear commitment to its goal: medium-term price stability with an inflation rate of two percent in the euro area.” Trichet praised the two most recent, historically high interest rate hikes in the euro area, each by 0.75 percentage points, as “completely justified”.
“The ECB did what needed to be done and I think it will continue to do what needs to be done. So I am confident that in three years time the euro area will return to its definition of price stability.” Trichet emphasized: “The achievements of the ECB over almost a quarter of a century are the guarantee of the credibility of the ECB and the clarity of its Governing Council.”
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
