ECB Insight: ECB’s Lane Says Inflation to Peak by Mid-2022…Maybe
5 April 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Philip Lane on Tuesday ventured an initial guess as to when euro area inflation would cease to mount.
In an interview with Greece’s Antenna TV, Lane said that ‘right now inflation is more than we would like.’
‘We do think that there may be some months to go’, he continued. ‘Maybe by mid-year we will see the peak. But I think it depends on the war.’
That was, Econostream believes, the first time since Russia illegally invaded Ukraine on February 24 that anyone from the ECB’s Executive Board has been willing to suggest clearly when euro area HICP, which has been consistently delivering upside surprises, might run out of steam.
That said, Lane left open the possibility that prices could simply plateau rather than correct.
‘Most likely, with the nature of the energy shock, prices will either level off at these high prices or will start to decline’, he said. ‘But the momentum of inflation will slow down, so we do think that in the second half to the year … the inflation rate will come down.’
Though he did not repeat the current staff forecasts, Lane echoed the theme of much lower inflation in 2023 and 2024. As before, he also denied that stagflation was likely, calling it a ‘natural question to ask’, but reminding that NGEU-driven investment and post-pandemic (‘after the pandemic’, he said) economic reopening implied ‘momentum in the European economy’.
‘So that is very important, and we think that, unlike the 1970s, these are a few months of high inflation rates’, he said. ‘It is not a decade of high inflation rates, and we do think the inflation will fall later this year.’
While Lane, or perhaps his interlocutor, avoided specific mention of monetary policy, the apparent confidence of the ECB’s chief economist that rampant inflation’s days are numbered is a counterweight to regular upside surprises, let alone the ECB’s price stability target, that comes shortly before the start of the quiet period.
With the Governing Council’s next monetary policy meeting next week, Lane may want to dampen any expectations that the ECB will double down in a hawkish way. His well-established preference for relatively dovish outcomes, however, hasn’t always made one a foregone conclusion.