The ECB’s chief economist told CNBC that the ECB must take its time to cut interest rates properly and will have a clearer understanding of inflationary pressures in June.
“A lot of evidence is accumulating, but to be fair we’ve been on pause since last September and we really need to take the time to get this right, from retaining to lifting restrictions,” Philip Lane told Reuters on Thursday CNBC’s Steve Sedgwick.
Governing Council member Ryan said the March meeting of the Eurozone Central Bank was an “important milestone” in the accumulation of evidence and showed that “the deflationary process has been ongoing.” During the meeting, the European Central Bank kept interest rates unchanged and released its latest macroeconomic forecast, lowering this year’s inflation forecast from 2.7% to 2.3%.
The G20 inflation rate fell to 2.6% in February.
Ryan said that based on the ECB’s March information, more data was needed, especially on wages, and that the Governing Council would know “a lot by April and a lot more by June” – that is, next Dates of both meetings.
At a press conference after the March meeting, ECB President Christine Lagarde said markets were pricing in the timing of rate cuts, which indicated starting in June from Thursday, “seemingly consistent with the central bank’s view More consistent.”
June has emerged as a key date in market commentary as it will be the first ECB meeting to assess spring data on this year’s wage negotiations.
Asked whether other colleagues on the ECB’s Governing Council recommended cutting interest rates before the summer, Ryan said he thought that meant the second quarter, which would include June.
“I think by the second quarter of 2024 we’re going to see more wage dynamics, we’re going to see more price pressure.”
He stressed that, for his part, it was important “to avoid trying to provide calendar guidance to the market.”
“Once we are confident enough that we will get back to our target in a timely manner and in a sustainable way, that’s the best time to move on to the next phase,” he said.
Room for profit decline
Policymakers have repeatedly stressed that many of the causes of the inflationary cycle have receded, such as soaring energy prices and supply chain issues.But they remain concerned about domestic inflationary pressures Corporate profits and wages rise.
Bank of England governor Andrew Bailey sparked controversy in 2022 by suggesting workers should not ask for pay rises to avoid fueling inflation.
Ryan said on Thursday that while the ECB’s forecast relied on some slowdown in wage growth, an improvement in people’s inflation-adjusted wages was “important” and that businesses should bear lower profits to achieve this.
“Wages are not the root cause of the inflation problem. But in terms of making sure we get back to the target, the interplay between wages and profits, our forecasts are predicated on some degree of wage deceleration,” he said.
“Importantly we need to see workers’ real earnings improve in order to rebuild, not just this year but the year after. So we are allowing wages to rise higher than normal.”
Lane added, “But we also need to see that, essentially, businesses are absorbing quite a bit of profits at lower margins. Profits are quite high in 2022, and there’s still some room for profits to fall. That’s something we haven’t addressed part of the problem.” There is. “
About The Author
