ECB’s Lagarde: Euro Area Inflation to Continue to Decrease to Near 2% in 2025

14 October 2023

By David Barwick – MARRAKECH, Morocco (Econostream) – European Central Bank President Christine Lagarde on Saturday said that inflation should remain on a downward trend towards 2% in 2025.

In a statement at a gathering of the International Monetary and Financial Committee during the annual meetings of the International Monetary Fund and World Bank, the text of which was also posted on the website of the ECB, Lagarde said, ‘We expect euro area inflation to continue to decrease, owing to easing cost pressures as well as the impact of tighter monetary policy.’

Wages would slowly decelerate even if their growth would still stay elevated, while profit margins would allow some absorption of the higher labour costs, she said.

‘Inflation is expected to decline to levels close to 2% in 2025’, she said. ‘However, the downward path has risks in both directions.’

Lagarde reiterated the ECB’s standard expression of confidence that current interest rates would, if kept as they are as long as needed, help restore price stability.

‘Having broadly stagnated over the first half of this year, real GDP is expected to remain subdued in the coming months’, she said. ‘Incoming data suggest that activity has been weak in the third quarter, as slower global demand and the impact of tighter financing conditions weigh on growth.’

However, she said, the economy would recover ‘over time’ as lower inflation and higher wages boost consumer spending.

‘Risks to the outlook continue to be tilted to the downside’, she said. ‘Growth could be slower if the effects of monetary policy turn out to be more forceful than expected, or if the world economy weakens further and geopolitical risks intensify. On the other hand, growth could also be higher than projected if the strong labour market, rising real incomes and receding uncertainty boost confidence among consumers and businesses and lead them to spend more.’