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Inflation too high: we will ensure price stability

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Inflation too high: we will ensure price stability

Inflation is too high. Russia’s war in Ukraine has led to a rise in the costs of energy and agricultural products. The shortage of materials, equipment and labor caused by the pandemic also contributes to the increase in prices. All of this affects people and businesses across the euro area, especially those with the lowest incomes.

In large part, this inflation is driven by factors that central banks cannot control. However, we can ensure that inflation does not persist. This could happen if price increases spread throughout the economy, fueling people’s expectations of higher inflation in the future. It could trigger wage-price spirals similar to those that have historically pushed inflation out of control.

For this reason, my colleagues on the Governing Council of the European Central Bank and I decided on Thursday to raise interest rates by 0.5 percentage points, ending an eight-year period of negative interest rates. We are united in our commitment to ensure that inflation returns to our target of 2% over the medium term.

It was the first time we raised rates in 11 years. But it was only the most recent step towards the return of the special measures we had taken to combat a series of crises. We started this process last December, announcing our intention to end the pandemic-related securities purchase program, which has helped the euro area deal with the economic fallout of the COVID-19 crisis. Last month, we interrupted another bond buying program dating back to 2015, when the euro area was at risk of deflation, which can be just as damaging as high inflation.

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Inflation will return to our 2% target

With these actions, we are sending a clear message to businesses, workers and investors: inflation will return to our target of 2% over the medium term. And these actions are already having an effect on interest rates across the euro area, which will help steer the economy on a path that will bring us back to price stability.

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