The European Central Bank (ECB) decided this Thursday to raise interest rates another 0.25 points to 4.5%, a maximum in 2001. The institution chaired by Christine Lagarde continues the most aggressive monetary austerity cycle in its history to fight inflation despite the risk of recession.
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The ECB began to increase the official price of money in July, from 0%, and now has 10 consecutive increases. The agency’s strategy is precisely to suffocate the economy, assuming the threat of increasing unemployment, until the weakness of demand in general favors a moderation of price increases.
The institution considers that inflation remains uncontrolled, far from its objective of 2%. The interannual CPI for August remained above 5% in the eurozone as a whole due to the rise in food and fuel prices. And, country by country, only Belgium and Spain kept it below 3% last month.
“Inflation continues to decline, but it is still expected to remain too high for too long,” begins the statement published this Thursday. For this reason, the ECB has decided not to stop to gauge the real effect of its strategy and with how much delay the worst consequences could arrive. Some are visible. States are paying more for borrowing – Spain, for example, is financing itself at the highest cost since 2011. Families suffer from the increase in the cost of mortgages – due to the rise in the Euribor – and the rest of the credit. And business investment is contracting for the same reason.
In fact, the European Commission updated its economic growth forecasts this Monday and cut the estimate for the entire eurozone for 2023 to 0.8% due to the 0.4% contraction of activity in Germany. Only Spain is saved from the expectations of stagnation due to the growth of tourism and exports of other services (consulting, IT…).
For its part, the monetary body itself states that “with the increasing impact of this adjustment on domestic demand and the weakening of the international trade environment, the ECB staff has significantly reduced its economic growth projections. They now expect the eurozone economy to expand by 0.7% in 2023, 1.0% in 2024 and 1.5% in 2025.”
Meanwhile, different factors have justified the ECB’s new hammer blow. Fuel prices have risen again, salaries are rising strongly and the euro is depreciating [lo que automáticamente encarece las importaciones en dólares, por ejemplo de petróleo].
“The ECB staff’s September macroeconomic projections for the euro area foresee average inflation of 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025. This is a revision to the increase for 2023 and 2024 and a downward revision for 2025. The upward revision for 2023 and 2024 mainly reflects a higher trajectory for energy prices,” explains the agency’s statement.
Of course, the ECB’s strategy ignores that the increase in interest rates cannot act on the evolution of fuels in international markets, nor in the rest of the energy markets, or that they do not prevent companies (especially banks, electricity and oil companies) are taking advantage of the inflation crisis to increase their profits.
Looking ahead to the next meetings, the organization points out that “future decisions of the governing council [que dependerán de los datos] “They will ensure that the ECB’s official interest rates are set at sufficiently restrictive levels for as long as necessary.” At no time has he hinted that this Thursday was the last rise in the price of money.
