Christine Lagarde, President of the European Central Bank, spoke during a CNBC panel on the World Economic Forum
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DAVOS, Switzerland – China’s decision to reopen the economy will boost inflation in Europe because the two countries compete for more energy, the president of the European Central Bank said on Friday.
This week on the World Economic Forum in Davos, Switzerland, there was a wide-ranging debate on whether Beijing’s decision to finish its zero-COVID-19 policy will end in less or more inflation.
On the one hand, some argue that as supply chains are restored, reopening could ease among the inflationary pressures Europe has faced in recent months.
Then again, others note that China will use more energy, which will increase ongoing inflationary pressures.
Christine Lagarde, president of the central bank of the euro area, belongs to the latter group.
Reopening China is “something that will be positive mainly for China, something that will be positive for the remaining of the world, but we will have inflationary pressure on a lot of us, just because the extent of energy that has been consumed by China within the last 12 months has been actually lower than what they will eat this 12 months, i.e. the quantity of LNG [liquefied natural gas] that [they] will buy from the remaining of the world, it will be higher than what we have seen, and there is not much spare oil and gas capability,” Lagarde said at a Friday panel in Davos hosted by CNBC’s Geoff Cutmore.
“So there will be restrictions, there will be more inflationary pressure resulting from this extra demand” – she added.
The International Energy Agency has warned that European corporations could face higher costs when purchasing natural gas this 12 months as there will be more competition for the raw material.
Inflation has been one in all the largest challenges for European residents during the last 12 months, mainly as a result of higher energy bills.
In 2022, the ECB raised rates of interest 4 times, lowering the deposit rate to 2%. In December, the central bank announced that it could proceed to boost rates of interest in 2023 to take care of skyrocketing inflation.
Recent data point to a slowdown in headline inflation, even when it stays well above the ECB’s goal of two%.
Based on preliminary data, December inflation within the euro zone amounted to 9.2%. It was the second consecutive monthly decline in price growth across the euro area.