ECB’s de Guindos: Economic Slowdown Should Lead To Inflation Slowdown, but This Is Taking Time
31 August 2023
By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Thursday said that despite while the materialisation of downside economic risks was leading to visibly weaker activity, the downward impact from this on inflation was not showing up as readily.
At a seminar organised by the Universidad Internacional Menéndez Pelayo in Santander, Spain, de Guindos said that ‘what we were identifying as potential downward risks for economic growth have been taking shape, that is, the indicators that we have been seeing in July and August and the leading activity indicators point to a slowdown in economic activity in the third quarter and probably also … in the fourth quarter.’
The service sector had also started to ‘show weakness’, he said.
The slowdown in economic activity ‘should ultimately lead to a slowdown in inflation’, but ‘the economic slowdown is more visible than the slowdown in inflation, although the economic slowdown will eventually lead to a slowdown, to a further slowdown in inflation.’
Sometimes one economic variable needs more time to unfold its impact on others, and this ‘is what is happening right now’ with inflation showing resistance despite economic weakness, he said.
‘We’ve gotten the inflation data [for August] and the inflation data were practically the same as what we had in July’, he added.
As for the upcoming Governing Council monetary policy meeting, ‘the decision is open’, he said. Economic developments were worse than those foreseen by the June projections, ‘that is, the downside risks have been materialising’, he said, whereas ‘inflation, however, well, it’s practically very similar to what we had in June.’
Monetary policy was in any event ‘entering the final stretch’, he said.