(Bloomberg) – European Central Bank chief economist Philip Lane said consumer price growth was likely near its zenith, while acknowledging that borrowing costs would rise again.
“It’s probably too early to judge ‘whether inflation is peaking,’ but I’d be reasonably confident to say it’s likely we’re close to peak inflation,” Lane told the Milano Finanza newspaper in a statement. interview published on Tuesday. “But whether it’s already the peak or whether it will come in early 2023 is still uncertain.”
A week and a half before the next interest rate setting by the ECB, the authorities indicate that they could slow down their recent rate of increase. Ireland’s Gabriel Makhlouf said on Monday a half-point move – after back-to-back increases of 75 basis points – was the likeliest outcome. The discussions on moderation follow the first slowdown in inflation in the eurozone in a year and a half.
“We expect more rate increases will be needed, but a lot has already been done,” Lane said, according to a transcript on the ECB’s website. “The starting point is different now. We have already raised rates by 200 basis points,” he said. “We have to consider the magnitude of what we have already done.”
What Bloomberg Economics says…
“We expect the ECB to rise over the winter, taking the deposit rate to 2.75% in March. Lower headline and core inflation should mean the Governing Council will cut rates towards the end of 2023 . »
–Jamie Rush, chief European economist. For a full overview, click here
On consumer prices, the ECB’s chief economist said he could not “rule out further inflation early next year.” Once we get past the early months of 2023, later in 2023 – spring or summer – we should see a significant drop in the rate of inflation. That said, getting inflation back from the current very high levels of 2% will take time. »
The ECB will likely have to enter restrictive territory on rates next year, said Alfred Kammer, who heads the European department of the International Monetary Fund.
“Inflation has been more persistent than expected, it’s higher than expected, so more central bank action is needed,” Kammer told Bloomberg Television’s Francine Lacqua and Tom Mackenzie on Tuesday.
When asked if the inflation rate could drop to 6%-7% in 2023, Lane said “the initial decline from current high rates will be around this level” with further reduction to follow.
Still, “we believe there will be a second round of inflation,” Lane said, citing larger-than-usual wage increases over the next three years. “That’s why it will take time to get back to our 2% target. So second-round effects will drive inflation next year and into 2024.”
(Updates with IMF comment on ECB from sixth paragraph.)
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