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European Central Bank President Christine Lagarde said on Tuesday that inflation in the euro zone has entered a new phase and may last for some time, which requires the ECB to maintain its tightening policy and avoid announcing an end to interest rate hikes. Lagarde said it was unlikely that the ECB would announce with confidence that interest rates had peaked in the near future. The problem now is that relatively fast wage growth is keeping inflation under pressure, while weaker-than-expected productivity growth has slowed the disinflationary process. Such a development would force the ECB to explicitly commit to keeping interest rates high for an extended period of time.
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