ECB’s Makhlouf: Decision Yesterday Reflected Growing Confidence in Disinflation
31 January 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Friday reiterated his view that policymakers needed to move cautiously, even as he acknowledged increased confidence in the restoration of price stability.
In a blog post on the website of the Central Bank of Ireland, which he heads, Makhlouf said, ‘In my view, the high levels of uncertainty in the global environment underlines the need for prudence in our decision-making.’
‘But underpinning yesterday’s decision was the progress in disinflation and our growing confidence that inflation would converge to target’, he continued.
Of particular importance this year for monetary policy would be credit demand, corporate investment and household consumption, he said.
According to Makhlouf, ‘the disinflation process remains subject to risks, and there is a high degree of uncertainty surrounding the outlook.’ Policymakers had to be ready to respond to new developments related to both inflation and growth, and this argued against any precommitments concerning interest rates, he said.
Though potentially useful, the neutral rate’s usefulness was nonetheless ‘limited’, he said, given the impossibility of pinpointing it and its evolution over time. Monetary policy is thus based on economic data, and the ECB must also adhere to its data-dependent, meeting-by-meeting approach, he said.
The latest information was ‘broadly consistent’ with a return to 2% inflation by the end of 2025, he said. The uptick in the last quarter was expected, even if it warranted constant and careful analysis of incoming data, he said.
‘In my view, we need to retain the flexibility to learn from the signals we observe in the incoming data between meetings and to adjust our thinking on the appropriate decisions, if necessary’, he said. ‘This is the essence of taking a “meeting-by-meeting” approach to decision-making.’
Among other things, policymakers needed to be ‘vigilant about any derailment of the disinflation process from stubbornly high services inflation’, he said. On that front, recent months have seen some reassuring signals including from wage trackers. Recent movements in energy prices, especially for gas, will warrant vigilance.’
Risks to growth were ‘firmly to the downside’, he said.