ECB’s Lagarde: ‘Latest Data Confirm the Ongoing Disinflation Process’

15 February 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Thursday said that disinflation was continuing and would see inflation decline over the current year.

In remarks at a Hearing of the Committee on Economic and Monetary Affairs of the European Parliament, the text of which was also posted on the website of the ECB, Lagarde said, ‘Overall, the latest data confirm the ongoing disinflation process and is expected to bring us gradually further down over 2024 as the impact of past upward shocks fades and tight financing conditions help to push down inflation.’

Interest rates, if kept long enough at current levels, would contribute significantly to restoring price stability, she reiterated.

‘The current disinflationary process is expected to continue, but the Governing Council needs to be confident that it will lead us sustainably to our 2% target’, she said. ‘We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction, taking into account the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.’

The services component of core inflation was exhibiting persistence, while high wage growth would likely ‘become an increasingly important driver of inflation dynamics in the coming quarters, reflecting tight labour markets and workers’ demands for inflation compensation’, she said.

Still, the latest wage agreements were consistent with a certain ‘levelling off’ in 4Q of last year, she noted.

‘Wage pressures for 2024 hinge particularly on the outcome of ongoing or upcoming negotiation rounds that affect a large share of euro area employees’, she said. ‘The contribution of unit profits to domestic price pressures continued to decline, suggesting that, as expected, wage increases are at least in part buffered by profit margins.’

New data were indicating near-term economic weakness, although there were also indications that growth would recover over the course of 2024, she said.