In the fight against inflation: The European Central Bank increased interest rates to 4.5 percent

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The weakening economy does not interrupt the interest rate increase series in the euro area for now: The European Central Bank (ECB) is increasing the policy rate by another 0.25 points to 4.5 percent. The ECB Council decided on Thursday in Frankfurt to raise interest rates for the tenth consecutive time since July 2022.

With high interest rates, the central bank is trying to control stubbornly high inflation. High interest rates make loans more expensive. This could slow demand and offset high inflation rates. Calls for interest rate cuts have been increasing recently as expensive loans also create a burden on the economy.

Following the previous Governing Council meeting at the end of July, ECB President Christine Lagarde had not ruled out the possibility of both further interest rate hikes and a pause in an unprecedented series of increases for the September meeting. At that time, the French were only opposing interest rate cuts.

Inflation target is 2 percent

In the medium term, the ECB targets an inflation rate of 2.0 percent for the euro area. At this level, monetary authorities believe that price stability is maintained. However, inflation is still far from this target. The increase in consumer prices in 20 country currencies did not weaken further in August.

According to the first estimate of the Eurostat statistical office, the annual inflation rate remained at 5.3 percent. Last year, due to the war in Ukraine, inflation sometimes reached double digits and energy and food prices rose rapidly.

Higher inflation rates eat away at consumers’ purchasing power, and people get less for their money. This situation slows down private consumption, which is an important basis of the economy.

“Stubborn monster inflation”

The latest data show “how stubborn the inflation monster is,” Bundesbank President Joachim Nagel recently told Handelsblatt. “We have made a lot of progress in the fight against inflation. However, we are still far from reaching the target value in inflation.”

There was at least a glimmer of hope in the latest inflation data: core inflation in the eurozone (the rate that excludes variable prices of goods such as energy and food) fell to 5.3 percent in August from 5.5 percent in July. (pbe/SDA)

Source :Blick