Inflation Evidence Is Needed Before The ECB Can Ease: Policymakers

(CTN News) – ECB policymakers believe more evidence is needed before cutting rates before inflation returns to its target.

The ECB has maintained rates at an all-time high since September; however, slowing growth and easing price pressures are driving talk of a rate cut. It is expected that the first move will take place in April or June.

According to Philip Lane, chief economist at the ECB, new data indicate that disinflation may proceed more rapidly than previously anticipated.

According to his remarks at the Brookings Institution, faster disinflation will lead to higher real income growth, which may lead to inflationary pressures in 2025 and beyond.

In order to be sufficiently confident that inflation will reach the target in a timely manner and settle at the target sustainably, we need to progress further in the disinflation process.

In Brussels, the chief economist of the Belgian central bank, Pierre Wunsch, noted that there were some encouraging signs regarding wages, the most closely watched element of price determination, but not sufficient to allow the ECB to begin easing policy restrictions.

It is clear that we will not be able to achieve full comfort within a reasonable period of time, according to Wunsch at an event organized by the think tank Bruegel.

The best course of action may be to wait until more information about wages becomes available, but we will eventually have to make some bets on inflation.

It is important to address the issue of wages, since workers have lost some of their real incomes due to inflation and they are now demanding compensation, which could lead to further price pressure if firms are forced to make excessive payments.

In spite of this, Lane indicated that wage indicators now show some signs of a mild slowdown in wage growth, even though many vital statistics from the fourth and first quarters are not yet available.

As part of its meeting on March 7, the ECB is expected to discuss rate cuts at least as well as new economic projections.

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