Home MarketsEurope & Middle East ECB’s Lagarde says China’s reopening will be inflationary

ECB’s Lagarde says China’s reopening will be inflationary

by SuperiorInvest

Christine Lagarde, President of the European Central Bank, spoke on a CNBC panel at the World Economic Forum

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DAVOS, Switzerland — China’s decision to reopen its economy will increase inflation in Europe as the two countries compete for more energy, the president of the European Central Bank said Friday.

At the World Economic Forum in Davos, Switzerland this week, there was a wide-ranging debate over whether Beijing’s decision to end its zero-Covid policy would lead to more or less inflation.

On the one hand, some say the reopening could ease some of the inflationary pressures Europe has faced in recent months as supply chains recover.

On the other hand, others note that China will consume more energy, adding to continued inflationary pressures.

President Christine Lagarde, head of the Eurozone’s central bank, belongs to the second group.

The reopening of China is “something that will be positive primarily for China, something that will be positive for the rest of the world, but we will have inflationary pressure on many of us, simply because the level of energy that China has consumed over the last year has certainly been less than how much they will use this year, the amount of LNG [liquefied natural gas] that [they] purchases from the rest of the world will be higher than we’ve seen, and there’s not as much spare capacity in terms of oil and gas,” Lagarde said during a Davos panel moderated by CNBC’s Geoff Cutmore on Friday.

“So there will be constraints, there will be more inflationary pressures coming from that added demand,” she added.

The International Energy Agency has warned that European companies may face higher costs when buying natural gas this year as there will be more competition for the commodity.

Inflation has been one of the biggest challenges for European citizens over the past year, mostly caused by higher energy bills.

The ECB it raised rates four times during 2022, bringing its deposit rate to 2%. The central bank said in December that it would raise rates further in 2023 to tackle extremely high inflation.

Recent data showed a slowdown in headline inflation, although it remains well above the ECB’s 2% target.

According to preliminary figures, December inflation in the eurozone reached 9.2%. This was the second monthly decline in price growth across the eurozone in a row.

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