By David Milliken
LONDON (Reuters) -The European Central Bank would react to “material” changes in the euro zone’s inflation outlook and ignore “tiny” ones as inflation is now under control, the ECB’s chief economist Philip Lane said on Tuesday.
The ECB cut interest rates this month for the eighth time in the past year and signalled at least a policy pause next month as it waits for the fog to clear surrounding trade tensions with the United States.
Lane appeared to signal that the bar for major policy changes was high as inflation had now all but settled at its 2% target.
“We’re in a zone of cyclical management,” Lane said at an event in London. “Now if we see the downside risks to inflation — of course, tiny things we can ignore — but material moves require some kind of monetary policy response, equally to the upside.”
Euro zone inflation, which briefly hit double digits in late 2022, fell to 1.9% last month and the ECB expects it to stay below its 2% goal next year.
Lane said the ECB had “largely” won its fight against high inflation even if prices in the services sector were still growing too fast. They rose by 3.2% in May.
“While headline inflation is currently around the target, services inflation still has some distance to travel to make sure that inflation stabilises at the target on a sustainable basis,” he said.
“Still, there has been sufficient progress in returning inflation to target to consider that this monetary policy challenge is largely completed.”
Speaking earlier on Tuesday, ECB vice-president Luis de Guindos said the “underlying disinflation process” in the euro zone was “relatively clear” despite swings in oil prices related to conflict in the Middle East.
Lane argued that falling oil prices affected inflation more slowly than rising ones, and said the ECB was keen to ensure inflation remained around 2% even after the swings in energy prices fade.
(Reporting by David Milliken; Writing by Francesco Canepa in Frankfurt; Editing by Alison Williams and Kevin Liffey)
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