The European Central Bank’s battle with inflation is nearing a crucial stage but there’s still work to be done, according to chief economist Philip Lane.
There’s still momentum in rising goods and food prices, Lane told a panel in Dubrovnik, Croatia, stressing that uncertainty remains “pretty high.”
“We expect to turn the corner, but I wouldn’t say we reached that corner quite yet,” the former governor the Central Bank of Ireland said on Friday. “We do think that this spectacular reversal of energy prices will feed into core, but timing is uncertain.”
Officials have raised interest rates at the fastest pace in ECB history to counter runaway inflation in the wake of Russia’s war in Ukraine. While price gains are well down from their record, underlying pressures that exclude food and energy costs where pricing tends to be volatile, remain elevated and have become the key focus for policymakers in Frankfurt.
How does VAT in Ireland compare with countries across Europe? A guide to a contentious tax
‘I was a cleaner in my dad’s office, which makes me a nepo baby. I got €50 a shift’
Will we have a tax liability if Dad gives us his home while he is alive?
Finding a solution for a tenant who can’t meet rent after splitting with partner
Some suggest hikes may need to persist beyond the two quarter-point moves that economists and investors widely expect in June and July to complete the monetary-tightening campaign. Once at their peak, borrowing costs should stay there for a “significant” period of time, Dutch central bank chief Klaas Knot said on Thursday. Addressing the same panel on Friday, Croatia’s Boris Vujcic said price growth is proving sticky.
“Inflation momentum is still persistent – especially the core and food components,” he said, while insisting that officials will meet the 2 per cent target in the next two years.
Eurozone inflation rose marginally last month to 7 per cent, up from 6.9 per cent in March, Eurostat said on May 2nd. That appeared to cement the ECB’s policy of continuing to hike rates for now. While markets are pricing in two more quarter point increases over the summer, there is much less consensus within the ECB on what should happen after that.
Still, regardless of whether rates increase further through the autumn, there is broad agreement the central bank will not cut rates this year unless there is a dramatic change in the inflation trend. Economists and policymakers fear inflation stops falling and remains at a rate well above the ECB’s 2 per cent target for the long term. – Bloomberg
