COLOGNE, Germany (Reuters) – The euro zone could suffer a recession over the winter as risks to the growth outlook intensify, but even that is not enough to reduce inflation without further rate hikes said European Central Bank Vice-President Luis de Guindos. Wednesday.

Growth suffered due to high energy costs and a loss of Russian gas, increasing the risk of energy rationing over the winter as households and businesses bear the financial consequences of high costs.

“Markets believe that the slowing economy would reduce inflation on its own,” de Guindos told a conference. “Actually, it’s… not fair. Monetary policy has to help.”

The ECB has promised rate hikes at each of its upcoming meetings and markets see the deposit rate surpassing 2.5% next spring, jumping from its current level of 0.75%.

De Guindos added that recent economic data points to a substantial slowdown in the economy and that risks to the ECB’s stagnant growth projection over the winter months were biased to the downside.

Inflation is “very, very” high right now, De Guindos said, and the potential prolongation of Russia’s war in Ukraine risks keeping that rate uncomfortably high for longer.

Price growth reached 9.1% last month and accelerated over the next few months before a slow decline that will still keep it above the ECB’s 2% target until 2024.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Editing by Jan Harvey)

Copyright 2022 Thomson Reuters.

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