Bank of France head Francois Villeroy de Galhau, a governing council member of the European Central Bank (ECB), said on Saturday that the spike in and fuel prices did not change the ECB’s objective to bring inflation back towards 2% by 2025. “Gasoline consumption at the pump represents roughly 5% of our total consumption, so it is a small part of total inflation, even if it is what is most visible,” he told France Inter radio. prices are trading near $100 a barrel, as investors are focused on the prospect of a supply deficit in the fourth quarter after major producers Saudi Arabia and Russia extended supply cuts. Villeroy noted that the current rise in energy prices was not as widespread as in 2022 after start of the war in Ukraine, when it included other types of energy and commodities such as grains and metals, making the rising oil price less of a threat to underlying disinflation. “I will say it again this morning, our forecast and our commitment is to bring inflation towards 2% by 2025,” he added. Villeroy also reiterated that ECB rates were at a good level and called for patience. “We have passed the peak of inflation, there even seem to be a turnaround in underlying inflation (…) now we have to be perseverant, keep rates at this level for as long as it takes,” he said. “Patience is more important than raising rates further.
Stable Inflation Target
The recent spike in oil and fuel prices has caused concerns among many economic experts. However, the European Central Bank (ECB) seems unmoved. According to Francois Villeroy de Galhau, a governing council member of the ECB and the head of the Bank of France, the increase in energy prices will not alter the ECB’s objective of bringing inflation back towards 2% by 2025. Villeroy highlights that gasoline consumption at the pump only represents approximately 5% of total consumption, making it a relatively small contribution to overall inflation. Although the rise in oil prices is noticeable, it does not pose a significant threat to underlying disinflation.
Comparing Current Situation to 2022
Villeroy further emphasizes that the current rise in energy prices is not as widespread as it was in 2022, following the start of the war in Ukraine. During that period, the increase included other types of energy and commodities such as grains and metals. This comprehensive rise in prices had a more significant impact on underlying disinflation. As the current price surge mainly focuses on oil and fuel, its overall effect on inflation is expected to be more contained.
Commitment to Inflation Target
Despite the recent spike in oil prices, Villeroy reaffirms the ECB’s commitment to its inflation target of 2% by 2025. He emphasizes that this remains the forecast and commitment of the ECB. The central bank aims to bring inflation back towards this goal, ensuring stability and economic growth in the Eurozone.
Steady Rates and Patience
In addition to the stable inflation target, Villeroy also highlights that ECB rates are currently at a good level. He emphasizes the importance of patience in the current economic situation. Villeroy believes that the peak of inflation has already passed, and there is even a potential turnaround in underlying inflation. Therefore, the ECB’s strategy is to be perseverant and keep interest rates at the current level for as long as necessary. Villeroy believes that patience is more crucial than raising rates further at this stage.
Conclusion
The recent spike in oil prices may cause concern, but the ECB remains resolute in its commitment to its inflation target. Villeroy’s comments highlight the limited impact of gasoline consumption on overall inflation and emphasize that the rise in oil prices is not as widespread as in previous years. The ECB’s focus on stability and the long-term goal of bringing inflation towards 2% by 2025 remains unchanged. With rates at a good level, the central bank prioritizes patience over immediate rate hikes. As the Eurozone economy navigates the challenges posed by rising oil prices, the ECB’s steady approach provides reassurance to businesses and consumers alike.
