António Costa
Photo: Olivier Matthys/ EPA

President and PM throw weight behind criticism of ECB’s inflation-beating policy

ECB has not sufficiently understood nature of inflation, says António Costa

Prime minister António Costa, and President Marcelo, have thrown their weight behind – or certainly their voices to – criticism of the ECB’s dogged intention to raise interest rates until inflation is back to 2%.

Referring to the speech given by ECB president Christine Lagarde in Sintra earlier this week, Portugal’s PM has said diplomatically that the ECB has not had “sufficient comprehension of the nature of inflation”.

Without going into the direct criticism of political journalist José Gomes Ferreira, he conceded that “the ECB is sovereign in setting monetary policy”, but that not only has it not been privy to “sufficient understanding of the specific nature of the inflationary cycle”, it has also “not taken into account the sectors that have fed this inflationist tension”.

Speaking to the Portuguese press in Brussels as he entered the European Council, he said: “today it is more or less clear that more than anything the increase in extraordinary profits have contributed more to the maintenance of inflation than wage hikes.”

Not understanding the specific nature of this inflationary cycle greatly limits our ability to face it because if we don’t get the diagnosis right the therapy cannot work quickly,” he stressed.

It is important that Europe learns lessons over errors that it has committed in the past, in having rules that are equal to all, but adjustable to the economic conditions of each one and not (to) external impositions”.

This last comment providing a chink of hope for the hundreds of thousands who heard from an unelected bureaucrat (the description of ECB leader Christine Lagarde made by an indignant political journalist) that their mortgage installments, and a lot more in between, would be increasing again, and possibly again and again.

Portugal’s own central bank governor, Mário Centeno, said yesterday that Euribor rates will continue to rise until September (12 months) and November (3 and 6 months), anticipating that after these dates they will start to fall … slowly.

As Mr Costa told his audience in Brussels: “Let us hope that, as the governor of the Bank of Portugal yesterday announced, starting in September we can begin to resume a monetary policy trajectory more appropriate to what is fundamental, which is to safeguard the living conditions of families, the ability of companies to invest and the economy to continue to grow, and to generate jobs that generate better wages”.

September may not be that far away, in calendar terms. But President Marcelo is full of concern.

He reacted to Ms Lagarde’s overall message, requesting “great ponderation” from the central bank.

This news has “a perturbing effect on people, economies and the markets – which is not good for anyone”, he said.

The ECB, indeed all central banks, should take “a lot of care in their discourse, because it is one that is very keenly felt in the day to day of people”.

Marcelo clearly did not want to say too much. But he referred to “countries like the United States of America reversing policy and not raising interest rates” and to “not long ago hearing central bankers say interest rates would not rise for a considerable period of time”.

“Now we hear them “saying that it is possible that they may rise not only this year but perhaps next year (…)

“What is required from governments as well as from political authorities, all of them, and from central banks is to be very careful in their discourse, because it is very sensitive to people’s day-to-day life”, he repeated.

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