ECB Ready to Stamp Out Inflation       06/28 06:11

   The head of the European Central Bank said Tuesday that it will move 
gradually to combat soaring consumer prices with interest rate hikes in July 
and September but will keep its options open to "stamp out" inflation if it 
surges faster than expected.

   SINTRA, Portugal (AP) -- The head of the European Central Bank said Tuesday 
that it will move gradually to combat soaring consumer prices with interest 
rate hikes in July and September but will keep its options open to "stamp out" 
inflation if it surges faster than expected.

   In a speech opening an ECB forum on central banking in Sintra, Portugal, 
bank President Christine Lagarde used strong terms as policymakers target 
inflation running at a record 8.1% in the 19 countries using the euro. With new 
inflation figures due out Friday, Lagarde said the bank is using the dual 
approach to be able to respond to economic uncertainty.

   Russia's war in Ukraine has led to surging energy and food prices that are 
higher than those seen in the 1970s and '80s, and "given its energy dependence, 
the euro area is experiencing these shocks acutely," Lagarde said.

   "The size and complexity of these shocks are also creating uncertainty about 
how persistent this inflation is likely to be," she said.

   The bank has already announced it will end asset purchases that worked to 
boost the economy on Friday, and follow with its first interest rates hikes in 
11 years at its meeting next month. It will also raise rates in September but 
is leaving the option open for a bigger hike than the quarter-point increase in 
July, in case inflation keeps spiking.

   The ECB also is trying to avoid further hurting economic growth by acting 
too aggressively, having "revised markedly down our forecast for growth in the 
next two years," Lagarde said.

   But "there are obviously conditions in which gradualism would not be 
appropriate. If, for example, we were to see higher inflation threatening to 
de-anchor inflation expectations or signs of a more permanent loss of economic 
potential," she said, "we would need to withdraw accommodation more promptly to 
stamp out the risk of a self-fulfilling spiral."

   Other central banks around the world, including the U.S. Federal Reserve, 
have moved quicker than the ECB to combat runaway inflation. But they face the 
threat of spurring a recession as they make borrowing more expensive, with Fed 
Chair Jerome Powell acknowledging last week that "it's certainly a possibility."

   The Fed has raised rates three times this year, including an increase of 
three-quarters of a point that marked its biggest hike in nearly three decades, 
and has more planned. The Bank of England has raised rates five times since 
December.

   Powell and Bank of England Governor Andrew Bailey will join Lagarde for a 
policy panel discussion at the ECB forum on Wednesday.