What the ECB can do about high inflation

SGreat 9.1 percent inflation in the euro area, at least 7.9 percent in Germany according to the national calculation method, as the Federal Statistical Office confirmed on Tuesday. Energy prices are not the only thing that puts a strain on the wallets of many consumers. Food, from bread to meat, is also becoming more and more expensive. Many people are already wondering: how do we get down from there? The European central bank (ECB) raised interest rates in two steps, by 0.5 percentage point in July and by 0.75 percentage points just under a week ago. It has also announced further interest rate hikes. But will this intervention by the central bank work now?

One person who is skeptical is the economist Marcel Fratzscher. The President of German Institute for Economic Research (DIW) in Berlin has put forward the thesis that the instruments of the central bank are not sufficient or not effective enough to get inflation under control in the foreseeable future. He cites two main arguments: First, the main cause of the high inflation is an increase in the price of imported goods that are beyond the ECB’s control, above all energy. And secondly, steps taken by the ECB only had a time lag, interest rate hikes only became fully effective after a year and a half. The ECB should rather admit that it can’t do this at the moment than raise expectations too high.

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