"Underlying inflation is there, alive and kicking."

The President of the European Central Bank, Christine Lagarde, wants to leave everyone in no doubt the ECB is intent on bringing inflation down.

At its press conference this week, following another half a percentage point increase in rates, the President added that the Bank had "a lot of ground to cover" and "we’re not done."

But at the same time, the Bank said the risks to inflation and economic growth are now "more balanced".

For months now, the risks have been described as "on the upside" for inflation and "on the downside’" for growth.

So, in other words, things are now no longer getting worse.

Fine, you say, unless you’re on a tracker mortgage or a variable rate where things are far from getting better.

And many people in this situation feel far from financially balanced.

The ECB's Governing Council raised interest rates this week

Another way to think about this is the ECB is still waving red flags, but it has turned down the blaring sirens.

After all, inflation across the euro area was still 8.5% in January.

That’s still a long way away from the ECB’s target rate of 2%.

However, this was lower than had been expected and we’re now clearly past the peak of inflation.

Growth was also better than expected, although a 0.1% increase in euro area GDP in the last three months of last year is hardly a Euro party.

Ireland’s 3.5% increase in GDP over the same period is a whole other story and a reminder of the magical mysteries of national accounting, GDP and multinationals.

So, despite the ECB’s warnings on inflation, and the fact that it’s still high, it’s probably fair to say we’ve arrived at a turning point of sorts.

And that’s when things may get awkward again.

The shock of this cycle of inflation took months for us to get our heads around, and the aspirin of various cost-of-living measures seem only recently to have made us a little less afraid of opening our utility bills.

Now, comes the tricky task of weaning our electricity bills off €200 credits and accepting the usual dollops of excise duties on our fuels.

Eurogroup President, Paschal Donohoe, and ECB President, Christine Lagarde

With the Government soon to make a decision on various cost-of-living measures which are due to expire at the end of this month, the warning given to Paschal Donohoe during his dinner with the ECB’s Governing Council must have caused a bit of political indigestion.

"...It is important to now start rolling these measures back promptly in line with the fall in energy prices and in a concerted manner," the ECB's statement reads.

It goes on to say that anything falling short of this is "...likely to drive up medium-term inflationary pressures, which would call for a stronger monetary policy response."

That’s central bank code for "if you don’t do this, inflation will go up and we’ll be forced to push interest rates up even higher".

Christine Lagarde did qualify this to mean retail energy prices during the press conference.

But with gas prices back to what they were well before the Russian invasion of Ukraine, and little sign in futures markets of a reversal in that trend, competition should eventually force some shift downwards in retail energy prices.

In a response that’s likely to be echoed by his colleagues around Europe, the Minister for Finance said on Friday that while he understood the "economic logic" of what the President of the ECB had said, he will "...consider the viewpoint of the ECB but in the same way we respect their independence when it comes to monetary policy decisions, fiscal decisions are made at a national level and we will make the decisions in the interests of the people we represent..."


There’s been a very cordial relationship between central bankers and politicians in recent times, especially over the period when money was being printed for free.

But money is no longer free. Far from it.

That cordial relationship may be about to be tested.