ECB warns of prolonged inflation volatility due to global economic shifts

Shafaq News/ European Central Bank (ECB) President Christine Lagarde warned, on Friday, that profound shifts in the global economy could lead to volatile inflation for years to come.

According to a report in the Financial Times, Lagarde noted that fluctuating inflation may complicate efforts to control prices, but she maintained that adhering to inflation-targeting frameworks remains the best option.

Lagarde cautioned that the global economy is currently experiencing divisions similar to the pressures that led to the rise of "economic nationalism", the collapse of international trade, and the Great Depression in the 1920s.

In a speech at the International Monetary Fund headquarters in Washington, she said, "We have faced the worst pandemic since the 1920s, the worst conflict in Europe since the 1940s, and the worst energy shock since the 1970s."

Lagarde explained that these disruptions and supply chain issues may have permanently altered global economic activity. She drew parallels between the 1920s and the 2020s, highlighting "setbacks in global trade integration" and significant technological advancements in both eras.

Although monetary policies in the 1920s worsened the situation by causing economic contractions and banking crises through strict adherence to the gold standard, Lagarde said, "We are in a better position today to address these structural changes compared to our predecessors."