ECB’s Villeroy: Disinflation Is on Track; Data-Driven Is Not Flash-Driven
28 June 2024
By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Friday said that the disinflation process had been successful and that the focus should not be on volatile data.
In a conference at the Banque de France, which he heads, Villeroy said, ‘Data are inherently noisy, and there is a risk of overreacting to volatile news, especially until the end of this year. So, data-driven in the current inflation environment does not mean flash-driven.'
‘Disinflation is on track', he said.
The ECB was gaining more confidence in its forecasts, and with it, ‘more scope to disregard possible smaller bumps in the disinflation process’, since data surprises and revisions were less frequent, he said.
‘Our pragmatic gradualism is consistent with gradually higher weight given to the projected outlook, and gradually lower weight given to the inflow of data’, he said.
The successful disinflation process reflected two channels of monetary policy, he said, namely the dampening of demand and the anchoring of expectations.
Monetary policy also prevented underlying supply shocks – which were proven to be temporary – from propagating to core inflation, he said.
‘While supply shocks can create complicated short-term trade-offs between output and inflation, they do not prevent us, central banks, from achieving our inflation target’, he said. ‘And achieving our inflation target creates the most favourable conditions for sustainable growth in the long run.’
Considering that not all shocks were alike, policy makers needed to assess risks in ‘a comprehensive and evidence-based policy process’, he said.