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Christine Lagarde has urged the European Central Bank to persist with high interest rates to prevent prices staying above its target as a result of tight labour markets and a big increase in eurozone wages.
The ECB president told its annual conference in Sintra, Portugal, that the eurozone had been hit by “overlapping inflationary shocks since the end of the pandemic”. By raising its benchmark interest rate from minus 0.5 per cent last year to 3.5 per cent this month, she said the ECB had “made significant progress” in addressing high inflation but it “cannot declare victory yet”.
Lagarde said the initial phase of inflation, in which the cost of supply shocks in energy and other commodity markets was passed on to consumers by companies, was fading. But a second phase driven by rising labour costs had emerged, with eurozone…