Centeno Says ECB Should Heed Lower Inflation Forecasts in March

(Bloomberg) — The European Central Bank must keep in mind that inflation has fallen short of its own forecasts when setting the pace of interest rate increases, according to Governing Council member Mario Centeno.

“The figure for February, just released, was several basis points below the December forecast,” the Portuguese central bank chief told La Stampa in an interview published Monday. Policymakers will need to look “very carefully” at updated inflation forecasts in March, which can be expected to be lower over the projection horizon, he added.

Centeno, who is among the more dovish ECB rate setters, spoke after euro-area underlying inflation — which strips out food and energy — hit a new record and the headline gauge stayed stubbornly high. That’s cemented another half-point move on March 16, which would bring the tally since the rate hiking cycle kicked off in July to 350 basis points and the deposit rate to 3%.

This weekend, the 50 basis-point rate hike this month was endorse by ECB President Christine Lagarde, who called it “very, very likely,” with Finland’s Olli Rehn telling broadcaster YLE that “a fairly significant interest-rate increase” is on the cards.

Beyond March, calls are growing to maintain the same pace, rather drop down to smaller increments as some had been suggesting just weeks ago. Markets are now predicting a peak at 4%.

Centeno stressed that the ECB only targets headline inflation, even though he acknowledged that “there are pipeline pressures on prices that can be stronger.” Still, the Portuguese governor said the Governing Council “should not rush to conclusions very fast.”

“We have been surprised by inflation in the downside compared with our forecast in December,” he said. “We expect the decision to reflect this lower inflation.”

–With assistance from Kati Pohjanpalo.

(Updates with Lagarde, Rehn in fourth paragraph)

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