ECB’s de Guindos: Inflation Still to Feel Stronger Impact of Tightening

4 October 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Wednesday said that monetary policy tightening should more strongly impact inflation over the next two years, whereas GDP would feel the greatest effect of ECB rate hikes this year.

In a speech at the first annual conference of the Central Bank of Cyprus, de Guindos said, ‘The downward impact of our tightening so far on GDP and inflation is estimated to average around 2 percentage points over the 2023-25 period, with the strongest effect expected on GDP growth this year and on inflation over the next two years.’

The ECB’s latest assessment was that that ‘the risks to economic growth in the euro area are tilted to the downside’, he said.

He noted the stagnation of economic activity in the first half of this year and signs that the labour market was also now weakening.

Despite some improvement, inflation was still expected to remain ‘too high for too long’, but the ECB was ‘determined to ensure that inflation returns to our 2% medium-term target in a timely manner’, he said.

‘[U]nderlying price pressures remain strong, although most measures of inflation have started to ease’, he said.

As regards financing conditions, de Guindos characterised the transmission of ECB policy tightening as ‘well underway’.

However, some uncertainties on the speed and scope of overall transmission still remained, he observed.

‘The transmission of monetary policy tightening to the real economy is proceeding at a slower pace, with a substantial share of the transmission still in the pipeline’, he said.