(Bloomberg) — European Central Bank Chief Economist Philip Lane said price pressures in the euro area will remain elevated even if surging energy costs are starting to ease.
(Bloomberg) — European Central Bank Chief Economist Philip Lane said price pressures in the euro area will remain elevated even if surging energy costs are starting to ease.
“This is not conclusive for the overall inflation dynamic,” Lane told a panel discussion in New Orleans. The original energy shock resulting from Russia’s war in Ukraine and pandemic reopening effects will feed into wages “for the next two or three years,” he said.
Euro-area inflation slowed to 9.2% in December, more than economists had predicted, according to data released Friday. The slowdown was driven by energy, though a measure of price growth that strips out such volatile items reached a record 5.2%.
With wage increases so far falling short of these price gains, there’s now a gap that will “keep pressure on inflation for the next number of years,” Lane said.
Still, if the slowdown in energy costs persists, it should over time feed into “less pressure on food inflation, less pressure on core inflation,” Lane said. “We should recognize that but, of course, we also should recognize the uncertainty about the future path of energy prices.”
The ECB raised borrowing costs by 250 basis points last year and pledged that more hikes will follow. Simulations show that the current level of interest rates isn’t enough to return inflation to the 2% target in a timely manner, Lane said.
“We’re quite comfortable with providing this forward guidance,” he said. “But let me also make clear, these decisions will be data-dependent, and will follow a meeting-by-meeting approach because of the uncertainty we face.”
(Updates with additional comments starting in fourth paragraph.)
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