ECB's Lagarde Believes Reopening Of China Will Increase Inflation
China has finally decided to open its economy once again after going through tough COVID restrictions. But according to Lagarde, this will further escalate the inflation problem in Europe.
The reason behind this is that China and Europe will be competing for energy products. As a result, this will increase the demand for energy products and thus lead to higher inflation. This was revealed by the ECB's president just a few days ago.
This week, a major debate was held at the World Economic Forum, in which China's decision to end the zero-COVID policy was discussed. At the heart of the debate was whether this move would increase inflation or decrease it.
Mixed Opinions On Inflation
On the issue of inflation, there are mixed feelings among world leaders. On the one hand, there are some who believe that China's reopening will restore the supply chains. As a result, it will ease inflation in Europe and other countries.
On the other hand, there are also some leaders who believe that China will consume a lot of energy. This could lead to increased inflation around the world!
And it seems that Lagarde (President ECB) is among those who believe inflation will get higher. She also said that the added demand would lead to more inflation pressure.
As per the IEA, European firms will have to pay a higher cost for their purchase of natural gas. Once again, the reason cited for this is higher competition in this commodity.
Ever since 2022, inflation has been a major challenge for EU countries. And a major part of this was driven by higher costs of energy.
To combat high inflation, ECB has introduced numerous rate hikes, which have pushed the interest rate towards 2%. And the inflation data from December suggests inflation was around 9.2% in the EU. This is still higher than the inflation target set by the ECB.