Philip Lane, Chief Economist and Executive Board member of the European Central Bank (ECB), said in a speech at an event in Ireland on the 18th that the eurozone’s current inflation rate of 3% remains “too high.” While it appears modest compared to the double-digit levels recorded in 2022, Lane made clear that it still represents a significant deviation from the policy benchmark.
Lane pointed out that “current inflation is one percentage point above our target” of 2%. He added, “You might think that compared to 10%, this is not a big deal, but from the standpoint of the standard approach of adjusting policy rates to shocks, it is still quite elevated,” emphasizing that the ECB is not yet at a stage where it can ease its tightening stance.
Eurozone inflation peaked at 10.6% year-on-year in October 2022, then decelerated amid the ECB’s rapid rate hikes and stabilizing energy prices. It has since fallen to around 3%, but a return to the ECB’s 2% target is expected to take more time.
Lane’s remarks were seen as aimed at pushing back against simmering market speculation of early rate cuts. The ECB has repeatedly stated its intention to keep policy rates at restrictive levels until it gains confidence that inflation is sustainably converging toward target.
Lane has previously expressed the view that the “last mile” in the fight against inflation will be the most difficult, citing wage pressures and sticky services prices as the main risks to price stability.
A majority of market participants expect the ECB to hold policy rates steady at its next meeting. Lane’s comments were interpreted as a message that any pivot toward easing would be premature as long as inflation remains above target, and could influence eurozone government bond yields and euro exchange rate movements.
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