Inflation more unpredictable due to shocks like COVID-19 and Russia’s invasion of Ukraine

From Yahoo Finance: 2025-06-30 15:46:00

The head of the European Central Bank, Christine Lagarde, warns that inflation has become more unpredictable due to shocks like the COVID-19 pandemic and Russia’s invasion of Ukraine. Lagarde emphasizes the need for policymakers to consider extreme scenarios and communicate them to the public to address the uncertainty in the economy.

Lagarde highlights that supply disruptions are causing companies to change prices more frequently, reflecting a structural shift in operating under higher uncertainty. The ECB’s assessment of the economy should include extreme scenarios, like the inflation spike following the invasion of Ukraine, to avoid projecting false certainty to the public.

The ECB reaffirms its 2% inflation target, with a current rate of 1.9% in May. The drop in inflation allowed the bank to cut its benchmark interest rate from 4% to 2%. Threats of higher tariffs from U.S. President Donald Trump add to uncertainty about growth and inflation, with discussions ongoing for a trade deal.

The ECB’s annual conference in Sintra is a key gathering of central bankers and economists. Fed Chair Jerome Powell will participate in a panel with Lagarde, Bank of England Governor Andrew Bailey, Bank of Korea Governor Chang Yong Rhee, and Bank of Japan Governor Kazuo Ueda.



Read more at Yahoo Finance: Frequent shocks to economy make inflation more unpredictable