ECB’s Centeno: Lower Inflation Forecasts Should Be Taken Into Account After March

6 March 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Mário Centeno said on Monday that lower inflation forecasts should be taken into account as the central bank decides on the future path of interest rates after its March meeting.

In an interview with Italian daily La Stampa, Centeno, who heads the Bank of Portugal, also called on central bankers to be patient and wait for the full impact on the economy of the ECB’s previous rate hikes to show.

‘If you ask me what will happen after March, I think it is important to take seriously the forecasts we will have in a few days’, he said. ‘We were surprised by inflation being lower than our December forecast. We anticipate that next week's forecast will reflect this lower inflation.’

‘[W]e have to remember that the February figure was several basis points below the December forecast’ he noted, adding that ‘[l]ower inflation does not require higher interest rates.’

The ECB’s tightening of monetary policy so far ‘was very rapid’, he said. The ECB would therefore ‘need some patience to allow these 300bp of increase to have an impact on inflation’.

There were ‘still uncertainties today, mainly driven by geopolitical considerations, which call for caution’, he said, adding that, ‘[a]fter March, we have to take all these ingredients into account.’

He struck a somewhat different tone from his colleagues with regard to underlying and core inflation, saying that ‘the ECB is not targeting underlying inflation, i.e. core. We are targeting primary, or headline, inflation.’

When looking at core inflation numbers, the ECB ‘should not rush to conclusions very quickly’, he said. Time lags were an issue, with underlying inflation having risen ‘with a delay of four to six months in Europe’, he said.

Other Governing Council members have emphasised that a durable turnaround in underlying and core inflation measures would be a necessary precondition for the ECB to move away from a restrictive policy stance.

Asked about a wage-price spiral and a de-anchoring of inflation expectations, Centeno said that he did not see evidence of either in the Eurozone.