ECB’s Müller: Inflation ‘Clearly on a Downward Trend’, But Wages Could Slow Rate of Deceleration

27 October 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Madis Müller on Friday said that inflation was clearly headed downward, but that wages and geopolitical developments remained key risks that could hinder the slowdown of prices.

In a blog post on the website of the Estonian central bank, which he heads, Müller said that ‘interest rates are already high enough to allow the price increase in the euro area to slow down permanently to the 2% target set by the central bank within a reasonable period of time.’

As to duration, this will depend on ‘the economic development of the coming months and quarters’, he said.

Inflation was ‘clearly on a downward trend’, but remained too high, also due to elevated wage growth, he said.

‘Although the euro area is currently showing the first signs of a slowdown in wage growth, sustained wage growth over a longer period of time may mean that general price growth will take longer to slow down’, he said.

The latest violence in the Middle East was among the ‘most important’ upside inflation risks, he said.

As for growth, short-term prospects were ‘rather more pessimistic’, he said, noting weakness in industrial production, credit growth and both housing and corporate investment.

A strong US economy and better-than-expected Chinese data last quarter offered some support, he said.

‘In summary, when describing the economic situation in the euro area, it is more correct to speak of stagnation and sluggish recovery, and not of a deep economic crisis’, he said. ‘Getting inflation under control does not necessarily require the central bank to trigger a deep recession with high interest rates. It is still likely that the euro area economy will gradually recover next year.’