FRANKFURT – Russian aggression against Ukraine is set to drive inflation higher in the near-term and poses significant risks to the eurozone’s growth prospects, European Central Bank President Christine Lagarde cautioned Wednesday.
She cited three main factors that are likely to push inflation up: Higher energy prices; higher food prices due to Ukraine’s key role as a wheat exporter; and renewed bottlenecks in global supply chains.
“At the same time, the war poses significant risks to growth,” Lagarde added. She pointed to souring sentiment, which suggests that consumers may dial back purchases while companies put investment on hold.
“Europe is entering a difficult phase,” Lagarde said. ”There is considerable uncertainty about how large these effects will be and how long they will last for.”
Amid the uncertainty, the ECB stands ready to revise both the size and the duration of its bond-buying program, which is currently scheduled to run out after the third quarter.
In any case, the ECB will move only gradually in its efforts to normalize policy in the face of raging inflation, she said.
“Gradualism means that we will move carefully and adjust our policy as we receive feedback on our actions,” Lagarde said. “Any adjustments to the key ECB interest rates will take place some time after the end of our net purchases under the [bond-buying program] and will be gradual.”