Lagarde stated that inflation is still far too high and vowed that policymakers will continue to make every effort to bring price increases back.

President of the European Central Bank, Christine Lagarde, stated that inflation is still far too high and vowed that policymakers will continue to make every effort to bring price increases back to the desired level.

“Whatever way you look at it, inflation is, by all accounts, way too high,” Lagarde said at a panel in Davos on Thursday. “We will continue on our current track until we have entered sufficiently tight terrain to quickly bring inflation back to 2%”.

Several policymakers are debating whether a lesser rate hike may be warranted after February's anticipated half-point move, according to sources with knowledge of their deliberations, as euro-zone price growth finally eases and natural-gas costs plummet.

However, given that underlying inflation set a new high in December and that the economy is performing better than expected in the wake of Russia's invasion on Ukraine, many authorities are still eager to proceed with rate increases in order to quell the sharpest price increase of the euro period.

Francois Villeroy de Galhau and Klaas Knot, both members of the Governing Council, reaffirmed in Davos that Lagarde's comments from last month regarding the necessity of half-point rate movements in the short term hold true today.

Knot warned earlier on Thursday that investors may be underestimating authorities' commitment, saying, "Most of the ground that we have to cover we will cover at a consistent pace of numerous 50 basis-point hikes." Followed by “There is no doubt that it won't end after only one increase of 50 basis points.”

Regarding the euro-zone economy, Lagarde stated that a "modest downturn" rather than a recession is now more likely.

In recent weeks, the news has changed much for the better, she noted. Even if the year hasn't been great, it has gone far better than expected.

Despite the more optimistic view, Christian Sewing, chief executive officer of Deutsche Bank AG, said inflation must be addressed and that there is no risk of the ECB tightening policy excessively.

"While I agree with all the comments that the economy is more optimistic, the fundamental issues we face in Europe — high inflation and certain other structural reforms — remain," he said to the same panel. “We also need to keep an eye on how our inflation is affected by China's opening.”

The rising cost of goods continues to worry Dutch Prime Minister Mark Rutte as well.

He told the group, "My concern is more about the preceding topic, which is inflation combined with Europe's weak longer-term growth prospects.”.

(Bloomberg.com)