ECB’s Makhlouf: With Some Inflation Components Still High, I Prefer to Ease Policy Gradually

13 December 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Friday said that while willing to continue cutting interest rates, he preferred not to do so by taking large steps.

In a blog post on the website of the Central Bank of Ireland, which he heads, Makhlouf said, ‘The disinflation process remains on track, allowing us to reduce rates. However, with some components of inflation still too high for comfort – notably, services inflation – I continue to favour a gradual reduction in rates over large moves.’

The latest increase in inflation was ‘fully expected’, and price stability would be achieved next year, he said. Food inflation was still ‘somewhat higher than expected’, but ‘all other components are below our projections from September’, he said.

Moreover, food inflation would peak at some 3.2% in the middle of next year and then subside to 2%, he said.

‘Services inflation is taking longer to fall back to pre-pandemic norms, hovering around 4% in the euro area for all of 2024’, he said. ‘As I have previously said, with goods inflation around its long-term average of 0.5-1%, I want to see services inflation closer to 3% in order to be more in-line with our target. The ongoing easing of wage pressures in the euro area should help with this.’

Interest rates were clearly headed downward even if there was no pre-commitment to a particular path, he said.

‘The exact pace and number of further reductions depends on inflation outturns continuing to move in line with our projections, as well as wider developments in the euro area economy’, he said.

With near-term inflation prospects stabilising, authorities would focus more on the medium term, he said. In particular, he continued, ‘the factors that affect economic growth, which I highlighted recently, will come to the fore in future policy debates.’

Makhlouf called the outlook for economic activity ‘more mixed’ but predicted all the same a recovery next year driven by higher incomes via improved spending and investment.

‘However, the economic outlook remains subject to a lot of uncertainty’, he said. ‘In particular, a rise in geopolitical tensions – from ongoing conflicts or a change in the environment for international trade – could have adverse effects for the euro area economy.’