ECB’s de Guindos: Need ‘Some More Time’ to Get Necessary Information

14 February 2024

By David Barwick – SPLIT, Croatia (Econostream) – European Central Bank Vice President Luis de Guindos on Wednesday said that the ECB required additional time to obtain the data needed to give it confidence about the sustainable restoration of price stability.

In a speech at the annual conference of Mediterranean central banks, de Guindos said, ‘While we are heading in the right direction, we must not get ahead of ourselves. It will take some more time before we have the necessary information to confirm that inflation is sustainably returning to our 2% target.’

The ECB will therefore continue to be data-driven, he said.

‘The next few months will be especially rich in new information on drivers of underlying inflation as we receive data on latest wage settlements and price re-setting by firms’, he said. ‘We will also have the benefit of new projections in March. In any case, our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary.’

The medium-term outlook of the December set of forecasts had been ‘broadly confirmed’ by the latest data, with economic softness likely to continue in the short term but indications of recovery thereafter.

According to incoming information, ‘the disinflationary process is continuing’, he said. ‘We also expect inflation to ease further over the course of this year amid the fading impact of past energy shocks, supply bottlenecks and the post-pandemic reopening of the economy, and as tight financing conditions continue to weigh on demand.’

Both market- and survey-based indicators corroborated this, he said.

De Guindos observed that while the ECB’s inflation projections were subject to smaller errors, the fact that inflation now tended to undershoot forecasts underscored the uncertainty estimates were subject to.

As for underlying inflation, nearly all indicators were continuing to decrease, he said. ‘This confirms that the disinflationary process is under way’, he said. ‘Some of the measures are still high, however, as it takes time for the impact of past shocks to fully fade.’

The domestic component of inflation, though moderating, was still elevated, partly due to high wage growth in the context of low unemployment, he said. Still, the pass-through of increased unit labour costs was being mitigated by lower unit profits, he said.

The ECB’s policy moved to date ‘continue to be transmitted forcefully into financing conditions’, he said, noting weaker credit and tight bank lending conditions.

‘Tighter financing conditions are also making their way through the economy by dampening demand, helping to push down inflation’, he said. ‘And given the typical lags in monetary transmission, much of the economic impact of our past policy rate hikes will continue to materialise over time.’

Even though inflation was headed in the right direction, developments were subject to risks, he said.

‘On the upside, wage pressures remain high and we do not yet have sufficient data to confirm they are starting to ease’, he said. ‘Profit margins could also prove more resilient than anticipated.’

Moreover, geopolitical tensions could lead to higher energy prices and negatively impact global trade.