"Families are not benefiting from low inflation" - ECB President Lagarde: This is a global phenomenon
Narrowing the gap between perceived and actual inflation could bring significant benefits to the eurozone economy, said European Central Bank (ECB) President Christine Lagarde.
"We pay close attention to households' inflation perceptions, not only because these have an impact on economic activity and expectations, but also to ensure that we continue to earn the trust of the people we serve," Lagarde said.
A central theme of her remarks was the gap between perceived and measured inflation and why closing it matters for confidence in the ECB's policies. Lagarde said they have a key role in voicing voters' concerns and helping to explain the central bank's decisions to the public.
The ECB, she said, must not only fulfill its mandate, but also communicate its choices in plain language, including the "why" and "how" rather than just the "what."
Regarding inflation itself, Lagarde struck a more optimistic tone, saying the ECB's efforts had worked and pointing to a significant decline from the peak, falling from 10.6% in October 2022 and staying close to the ECB's target since then, fluctuating around 2% in the second half of last year.
The fall in inflation may not have always been felt, according to ECB consumer expectations surveys conducted since April 2020. Many people still think prices are rising faster than official figures suggest, something Christine Lagarde called a "global historical regularity."
"Inflation perceptions describe people's beliefs about recent price changes. While these perceptions tend to vary with measured inflation, they are usually higher. This is not a phenomenon specific to the euro area, it is a global phenomenon observed all over the world," she continued.
ECB data show that perceived inflation in the euro zone has been 1.2 percentage points above the measured rate on average. Lagarde said perceptions still matter because they shape spending and saving decisions, wage demands and trust in institutions.
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