European Central Bank raises interest rates to combat inflation

Politics - November 8, 2022

Inflation is rising throughout Europe, and Italy seems to be one of the countries most affected by the phenomenon with +9%.
This is why the European Central Bank has decided to continue with its policy of raising interest rates by 0.75 per cent; this choice stems from the need to counter the inflationary rise in the Eurozone.
Indeed, as Christine Lagarde, President of the ECB, stated, ‘inflation continues to be far too high and will remain above target for an extended period of time’.
The fight against rising prices confirms the ECB’s concern that the phenomenon is growing steadily and is difficult to combat.
While the economic decision, which should bring benefits in the medium term, is understandable, it is equally evident how this policy will affect the lives of individuals and businesses.
The higher costs on variable-rate loans and financing, be they mortgages, loans or credit cards, will in fact lead to an obvious impoverishment of households, especially of the age groups that have recently opened a mortgage (between 30 and 40 years).

This will lead to households spending less on goods and services and a consequent downturn for businesses, impacting the overall production chain.
A sacrifice expected by the central banks but considered indispensable to stop the inflationary spiral.
Even in this case, there is no shortage of voices opposed to this choice, voices that point out that the current situation is far from predictable in its developments, in particular due to the problems created by the war in Ukraine and the many unresolved critical issues, not least that of the post covid recovery phase, which appears far from definitive, but above all they believe that the main cause of the surge is to be found in speculative phenomena, which take advantage of a situation such as the current one, increasing their profits.

According to many observers and economists, the ECB’s choice will fall mainly on the weaker sections of society, increasing the gap between the privileged and the poor classes, as already happened in the 1980s.

It is certain that the risk of a recession is more than real, but the ECB’s objective remains that of keeping inflation under control, which in September touched 10% on average in the single currency area for the first time, with all the consequences of the case for businesses and families.