ECB’s Lane: Inflation to Come Down Quite a Lot Later This Year

4 August 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Philip Lane on Friday said that inflation in the euro area would decline substantially in the latter part of 2023.

In a podcast on the website of the ECB, Lane said, ‘And what we have in our projections is inflation will come down quite a lot later this year, but getting all the way back to our 2% target, it's essentially scheduled more or less for 2025.’

This in any case assumes that the ECB will ‘deliver on our commitment in terms of making sure that interest rates will help that process’, he added.

Monetary policy at present was ‘tricky’, he said, given confidence on the one hand that cheaper energy would lead to a broad cost decline, but the fact on the other hand that last year’s high inflation was ‘basically pushing up wages this year.’

‘So, there’s forces working in the opposite directions, and this is why we're very data-dependent’, he said. ‘You know, as we go into the autumn, we're going to be hunting … for clues, looking at the incoming data, essentially to see which of these forces is … getting stronger, which of these forces is getting weaker.’

The ‘profit dynamic’ with respect to inflation was not yet at an end, he said. ‘And so, our assessment that inflation will come down does rely on a calculation that having had a quite a lot of profitability last year, that this year and especially going into next year, firms will just have to live with lower profits.’