European Central Bank chief suggests firms are engaging in ‘greedflation’
The president of the European Central Bank suggested companies were taking advantage of high inflation when raising prices, after the bank raised interest rates by a quarter of a percentage point to tackle the cost of living surge.
Christine Lagarde said wage pressures in the eurozone had strengthened, as workers try to recoup some of the purchasing power they have lost due to inflation, but hinted some firms were engaging in so-called greedflation.
She said: “In some sectors, firms have been able to increase their profit margins on the back of mismatches between supply and demand, and the uncertainty created by high and volatile inflation.”
The interest rate rise marked the seventh successive increase in borrowing costs in the single currency bloc, and came after the US Federal Reserve raised rates to the highest level in 16 years on Wednesday despite concerns about the worst banking crisis since 2008.
The latest increase pushes the ECB’s deposit rate up to 3.25%. The refinancing rate rose by a quarter of a percentage point to 3.75%. The central bank, responsible for managing inflation across the 19-member bloc, has steadily increased its deposit rate from -0.5% last summer.
However, the increase marks a slowdown from previous rises of half a percentage point used by the ECB in previous months – raising the prospect of the central bank entering the final stage of its most aggressive assault on inflation since the start of monetary union in 1999.
“While today’s hike is the seventh increase in a row, it is the smallest in the current cycle, suggesting that the ECB has entered the final stage of this tightening cycle,” said Carsten Brzeski, the global head of macro at the Dutch bank ING.
Financial markets had widely expected a
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