Inflation in the euro zone still has “a lot of momentum,” though it is moderating, according to European Central Bank Chief Economist Philip Lane.
(Bloomberg) — Inflation in the euro zone still has “a lot of momentum,” though it is moderating, according to European Central Bank Chief Economist Philip Lane.
Price gains have eased from their double-digit peak and underlying pressures abated in April for the first time in 10 months, allowing the ECB last week to slow the pace of its unprecedented spell of interest-rate increases.
“There’s still a lot of momentum in inflation, but later this year and ongoing a lot of this inflation is supposed to reverse, partly because of the reversal of the underlying shocks, partly because of monetary policy,” Lane told a panel Monday in Berlin. “There’s a lot of disinflation coming later this year,”
He said “there’s still momentum in food and core inflation, which is for this year running in the opposite direction to the decline in energy inflation.”
The ECB has said it still sees “significant upside risks” to the inflation outlook, which currently envisages the 2% goal being met in the second half of 2025. Most economists predict two more quarter-point rate increases, in June and July.
Dutch central bank chief Klaas Knot said Sunday that borrowing costs must be lifted “as long as the underlying inflation hasn’t been tamped down.” Others including France’s Francois Villeroy de Galhau have expressed similar views, while Italy’s Ignazio Visco, who’s considered more dovish, has said the ECB is close to reaching the peak in rates.
Bloomberg Economics says price growth may return to target without squeezing the economy too much.
“As headline inflation returns to a downward trajectory, our analysis shows wage gains will moderate,” Chief European Economist Jamie Rush said in a report. “Opportunities for companies to profiteer will vanish as well.”
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