ECB’s de Guindos: Inflation Will Be Slightly Lower Than Predicted

31 January 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Wednesday said that inflation had surprised positively and could turn out to be lower than anticipated.

In an interview with German weekly Die Zeit, de Guindos said, ‘… inflation figures have mostly brought positive surprises recently. I think that inflation will be slightly lower than we have predicted.’

The convergence to the 2% target should happen in the second half of 2025 according to the latest projections, he reminded.

Asked whether there was a risk of waiting too long to reduce interest rates, he said, ‘I don’t think so’, adding that the ECB ‘changed course as early as December 2021, long before our first rate hike, when we announced that we would be gradually ending our bond buying programmes.’

‘This was a first step in the normalisation of monetary policy’, he said.

It was difficult to determine the impact of monetary policy on the economy, especially with respect to consumer spending and investing, because of the transmission lag, he said.

‘My personal estimate is that the greater part of the tighter financing conditions, perhaps two thirds, has been passed through to the real economy already’, he said.

Euro area growth could be somewhat lower as a consequence of monetary policy, he said, but it was necessary to wait for the March projections.

The strong labour market contributed to a balance between inflation and growth, he said. ‘The economy did not collapse’.

‘Please don’t forget that when inflation abates and wages increase in relation to prices, then people regain their purchasing power. That generates more consumer spending and an economic recovery’, he said. ‘So by reducing inflation, we are also contributing to more growth in the future.’