ECB chief expects inflation returning to 2% in 2nd half of 2025

By Ovunc Kutlu

ISTANBUL (AA) - European Central Bank (ECB) President Christine Lagarde said Friday inflation is projected to return to 2% over the second half of 2025.

The coronavirus pandemic caught world economies after a long period of "anaemic growth, below-target inflation and low interest rates," she told the 2024 Michel Camdessus Central Banking Lecture organized by the IMF in Washington, D.C.

"Our determined policy actions have successfully kept inflation expectations anchored," she said. "Considering the size of the inflation shock, this unwinding is remarkable."

Lagarde said the recent years have been an "extreme stress test of inflation targeting" across the globe, which faced back-to-back shocks, and a differing variety and strength of shocks in various places.

Inflation, however, is converging towards central banks' target almost everywhere around the world, she said, noting disinflation has come at a low cost to employment.

She emphasized that the central banks' monetary policy strategies have proved effective and mitigating trade-offs between inflation and employment.

"When the inflation goal is stated sufficiently clearly, and monetary policy is credible, inflation expectations will remain anchored, which makes the adjustment process to an inflationary shock less painful," she added.

The ECB chief said the goals of monetary policy do not change, but that does not imply that the way in which it is conducted will remain the same.

Lagarde added that there are profound uncertainties ahead, as the European economy is currently undergoing transformational changes, and the ECB needs to analyze and understand their impact.

She listed some of those uncertainties as climate change, ageing societies, and setbacks in global trade integration.