ECB Insight: Policymakers Sounding More Relaxed on Inflation Outlook But More Concerned About Growth

5 September 2024

By Marta Vilar – MADRID (Econostream) – The European Central Bank will share its updated projections following the Governing Council meeting on 12 September, and although most policymakers haven’t yet seen these, their public comments may give some idea of what to expect.

After June brought an upward revision of the inflation forecast, showing 2% reached at the end of next year, a further shift outward of the earliest date at which price stability is restored could be cause for concern.

Feeble activity however has left some Governing Council members more immediately concerned about prospects for growth, and a number of them have explicitly voiced the fear that still-restrictive monetary policy could throttle the economy.

The following is a collection of recent comments by Council members about the inflation or growth outlook:

Governing Council members sounding more relaxed on inflation

  • ECB Chief Economist Philip Lane: ‘[Wage growth] catch-up is peaking now. It’s going to move quite significantly next year and the year after to a much lower rate of wage increase. And this is where the confidence in returning to target comes from.’
  • Executive Board member Isabel Schnabel: ‘All in all, recent data remain consistent with the baseline scenario that foresees that inflation will sustainably fall back to our 2% target by the end of 2025.’
  • Bundesbank President Joachim Nagel: ‘…I believe this wave of inflation is coming to an end. … we in the euro area are now well on the way to sustainably achieving our inflation target of 2%. Based on the Eurosystem projection from June, we should hit this target at the end of 2025. … We’ll be seeing somewhat higher rates again soon. But I think that we’re past the worst of it: we’ve ridden out the big wave.’
  • Bank of Lithuania Governor Gediminas Šimkus: ‘And while I have not seen the newest macroeconomic projections yet, I don't believe that they will change substantially, because the data have been more or less in line with what we expected.’
  • Banco de Portugal Governor Mário Centeno: ‘…when we look at the European Central Bank's June [projections], the data has fortunately confirmed the predictions that the ECB has been producing.’
  • Latvijas Banka Governor Mārtiņš Kazāks: ‘…this is consistent with the baseline scenario that we have. And I would say that we are still solidly on the path to 2% during 2025.’

Governing Council members flagging growth concerns

  • Executive Board member Piero Cipollone: ‘Data for the second quarter are consistent with these projections, but the most recent data – such as consumer confidence and activity indicators (Purchasing Managers’ Index), particularly for the manufacturing sector – have not been so encouraging. This poses a risk to the euro area growth outlook.’
  • Banque de France Governor François Villeroy de Galhau: ‘Previously, the main danger was that inflation was too high. Today, with the progress we have seen, we must also watch out for the opposite risk, that of not having enough growth and therefore ultimately inflation that is too low.’
  • Bank of Lithuania Governor Gediminas Šimkus: ‘Growth is sluggish and the risks are to the downside.’
  • Bank of Greece Governor Yannis Stournaras: ‘We want to drive inflation to our target by the end of 2025. This will require a tight monetary policy in the coming months. On the other hand, however, we do not want to undermine the economic recovery that has begun and risk pushing inflation below the 2% target.’
  • Bank of Finland Governor Olli Rehn: ‘…the recent increase in negative growth risks in the euro area has reinforced the case for a rate cut at the next ECB monetary policy meeting in September…’