The European Central Bank (ECB) could raise interest rates again next year, creating problems for consumers as it tries to dampen demand, which is a major driver of inflation, according to the financial institution’s chief economist, Philip Lane, Reuters reported. quoted by news.ro

With inflation nearing double digits, the ECB raised interest rates twice in July and September and promised more action as long-term inflation expectations are now above the 2% target.

“We think it’s going to reduce demand, we’re not going to pretend there’s not going to be a problem,” Lane said on a conference call.

“Demand is now a source of inflationary pressure, six to nine months ago it was not the same as it is now,” he explained.

The ECB’s deposit rate of 0.75% is still too low as it continues to stimulate the economy, so the ECB’s work is not done yet, Lane added.

Most economists believe that the neutral interest rate, at which the ECB does not stimulate or hinder growth, is between 1.5% and 2%. However, markets see the top of the interest rate cycle at a higher level, and investors are now looking at interest rates just above 2.5% next spring.

Lane has argued for months that the current inflation is caused primarily by the shock of high energy prices.

Monetary policy is largely ineffective against such supply-side shocks, so the ECB was one of the last major central banks to raise interest rates.

But rising prices have now spread and started to seep into all aspects of life, while robust consumer demand is also driving prices.

While Lane said interest rates could continue to rise at each ECB policy meeting this year and could be raised early next year, the ECB is keeping its options open on where to stop and will decide at the meeting.

Lane added that the eurozone economy is likely to stabilize in the winter months and that a recession cannot be ruled out given high energy prices and natural gas shortages.