ECB’s Lane: ‘I Would Not Overly Focus on December as a Critical Decision’
3 October 2023
By David Barwick – VILNIUS (Econostream) – European Central Bank Executive Board member Philip Lane on Tuesday said that the December monetary policy meeting of the ECB Governing Council shouldn’t be assumed to be the occasion for an important decision.
Speaking to journalists on the margins of a conference of the Bank of Lithuania, Lane made the following key comments that we reproduce here:
‘So, if you like, the base case is to maintain this level for as long as needed. And then, as we get closer to returning to the target, then we can start to normalise monetary policy. But we think it's a mistake to give you a calendar. A calendar in terms of the timeline would suggest we have more certainty than we have. So rather than say, here's the calendar, what we say is, it depends on the incoming data. And we will have new forecasts in December, next March, next June. One piece of data I’ve emphasised this morning, but also recently, is the wage data. So, wage increases right now are quite high. But we expect them to become lower next year. And for me personally, seeing that wage data come in lower next year is important. We're not going to know this until well into 2024. So, if you'd like, that's an important piece of information that is months away. So, this might help to understand, the calendar will depend on incoming data. But of course, another element of what we say is that it depends on the strength of monetary transmission. ... So, all of that is to say we live under uncertainty. We are clear, if the inflation outlook gets worse, if we see increases in the medium-term inflation outlook that's not consistent with returning to 2%, we will be prepared to raise rates more. But at this point, the, the risk to me is two-sided. We see that upside risk, but we also see downside risk. So, rather than, repeat, give you a calendar, we will say we're going to be data-dependent, and we will be in a data-dependent mode for a long time to come.’
‘And we know, even though the energy dynamic has turned around, what has not turned around is the wage dynamic, yet. So, coming back to what I said earlier on, we do assess that wage inflation will come down. But that's going to be sort of months, it’s going to be, it'll take time. So … what we saw in September is welcome, but we need to see further progress. The second issue is, this is going to take time. The third issue is in addition to wages, we also need to understand the behaviour of profits. So, in some service industries, a lot of tourism, for example, it was not just rising wages. There's also been definitely price hikes because of the very strong consumer demand last year for tourism. So, we need to see the profit dynamic cool off as well. So, for services inflation, I welcome September, but I think we will be looking at the service inflation data for quite a while. And again … regardless of whether it's December, next March, next June, what I said is that there's a lot of uncertainty, and essentially, some of this uncertainty is not something to be resolved by December. So, the wage dynamic, I don't think that by December we'd have a very different view. Our assessment of wages, I think, will be much more advanced next March and next June rather December. So, I would not overly focus on December as a critical decision.’