Inflation in the Eurozone was at 8.1% in May, the highest rate since the creation of the euro. The main driver is energy price inflation, which is at 39.2%. Many, especially in Germany, are now crying for tightening monetary policy. European Central Bank President Christine Lagarde already explained that the ECB won’t do it, but plans to keep monetary policy “neutral.” Indeed, in order to pull rates out of the negative realm, the ECB would have to raise them above inflation. Instead, it will at most move them a half-point higher. This is less than neutral – one might even say “co-belligerent” with inflation.
In an interview with Class-NCBC, Italian economist Michele Geraci said that “We are paying the price of 10, 12 years of zero-rate policy by the European Central Bank.” Geraci says it could be accepted that in 2008 the ECB gave a “liquidity boost,” “but after 10 years, we cannot have this zero-rate policy. We knew that this would create inflation and today, one decade later, we pay the price for it.”
