Inflation Could Fall Faster Than ECB Expects, Visco Says

18 July 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – Disinflation in the Eurozone could occur faster than the European Central Bank currently expects, ECB Governing Council member Ignazio Visco said on Tuesday.

In an interview with Bloomberg, Visco, who heads the Bank of Italy, said that the ECB currently saw a ‘substantial reduction’ of inflation in its projections: ‘The ECB projects that by the end of 2025 [inflation] will be 2.2%. My impression is that it might be faster.’

Although the Eurozone was experiencing ‘cost-push’ inflation, ‘what really matters is whether […] to this, some demand effects may be added’, he said, adding: ‘What we are observing in Europe these days, is that while manufacturing is slowing down, or even falling, the service sector, especially tourism, is booming in a number of countries.’

Policymakers now needed ‘to be patient and wait for monetary policy to have all its effects on demand’, he said.

It was possible for the ECB to ‘disinflate the economy without a recession’, he said. A recession would not be necessary to return inflation to target, he argued. ‘There is a risk of doing too much, and I think that we have to be careful about that', he said. 'Because if we do too much at the end, we may overdo even our target.’

The key question for the ECB would be ‘how long we must remain in this type of [restrictive] territory’, he said. Asked whether this meant a policy of ‘higher for longer’, he replied that ‘if you define longer as not too long, I suppose that's the answer.’