ECB’s Villeroy: Signs of Peaking Inflation in the US Are ‘Good News for Everyone’

15 November 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Tuesday said that indications of a turnaround in US core and headline inflation were a welcome development on both sides of the Atlantic.

In Tokyo, where he gave two speeches, Villeroy, who heads Banque de France, said that euro area inflation was ‘becoming more "domestic" and broad-based’, and cited October core HICP of 5.0%.

‘Monetary policy has a more direct impact on core inflation, and central banks cannot not let it get out of hand and persist’, he said. ‘This [is] our mandate, and our responsibility. Therefore a normalisation in our stance has been clearly warranted over the last year.’

A ‘substantial part’ of ECB monetary accommodation has been withdrawn with the three consecutive rate hikes to date, he said.

Monetary authorities ‘are clearly approaching the "normalisation range" which can be estimated at around 2% in the euro area’, he said. ‘We should reach this level by December. Beyond this, we will probably continue to raise rates, but we may do so in a more flexible and possibly less rapid manner - “jumbo” rate hikes will not become a new habit.’

A clear peaking of core inflation would be a ‘favourable condition’ for an interruption of rate hikes, he said.

Villeroy rejected comparisons of the euro area with the US, arguing that inflation was different in the two areas.

‘Hence we don’t need to raise rates at the same pace, nor to the same level’, he said. ‘That said, signs of peaking inflation – headline and core – in the US last Thursday are good news for everyone, as the US has been ahead of the global inflation cycle, and the US monetary tightening has had strong spill overs on the rest of the world through the high level of the dollar.’