ECB policymakers warn about inflation problem By Reuters

By Balazs Koranyi

FRANKFURT (Reuters) – European Central Financial institution policymakers warned on Friday that the ultimate stage of pushing inflation right down to 2% could possibly be particularly exhausting however stated they have been assured that coverage was working as supposed, whereas some even noticed room to ease coverage additional in 2024.

The ECB reduce rates of interest from report highs on Thursday in a long-telegraphed transfer, however held again from any pledge to ease coverage additional after inflation and wage progress information in current weeks got here in above its expectations, indicating it’s going to want even longer to satisfy its goal.

The largest warning got here maybe from Germany, the euro zone’s largest financial system, which poured chilly water on ideas {that a} large wage soar this 12 months was a one-off.

“Negotiated wages are expected to rise particularly sharply this year and continue to see strong growth thereafter,” the Bundesbank stated. “Inflation is proving to be stubborn, especially in the case of services.”

Wage rises improve disposable incomes and thus put upward stress on costs, notably in wage delicate sectors like providers.

Bundesbank chief Joachim Nagel stated Thursday’s price reduce was not untimely given the progress on inflation however he additionally stated the ECB wouldn’t be on auto pilot for additional price cuts.

Austria’s Robert Holzmann, the one policymaker to oppose Thursday’s reduce, stated that inflation was stickier than the ECB predicted, so the financial institution wanted to behave extra cautiously sooner or later.

TRICKY FEW MONTHS

ECB Vice President Luis de Guindos stated that inflation might nonetheless rise from present ranges earlier than dropping again to 2% in direction of the tip of subsequent 12 months, making the subsequent few months troublesome.

“There will be months when inflation may even accelerate slightly but we are convinced that next year it will converge with the target,” he advised Spanish radio station Onda Cero.

“The coming months will not be easy,” he stated.

Whereas most policymakers kept away from making coverage predictions, Lithuania’s Gediminas Simkus recommended there could possibly be room to ease additional this 12 months.

When requested if additional financial easing this 12 months was potential, Simkus stated: “If the economy develops according to forecast, I think so, yes”.

Markets see between one and two cuts this 12 months and a complete of 4 cuts between now and the tip of subsequent 12 months within the 3.75% deposit price.

Economists argue that any price at or above 3% restricts financial progress so ECB coverage will proceed to carry again the financial system effectively into subsequent 12 months.

The closest ECB President Christine Lagarde got here to predicting future strikes on Thursday was when she stated there was a “strong likelihood” that Thursday’s reduce was not a one-off however slightly the beginning of a dialling again course of.

Policymakers chatting with Reuters on Thursday, nonetheless, stated that any step in July is extremely unlikely and the subsequent potential window to chop charges could be in September, supplied information within the run as much as that assembly supported such a transfer.

ECB board member Isabel Schnabel, who has already known as for a pause in July, nuanced her phrases on Friday, steering away from any particular touch upon the subsequent assembly.

“As the future inflation outlook remains uncertain, we cannot pre-commit to a particular rate path,” she stated.