2024.06.17 11:14
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Chief Economist of the European Central Bank: Confident that inflation will fall to 2% in the second half of next year

The Chief Economist of the European Central Bank stated that they are confident that the inflation rate will fall back to the target of 2% in the second half of next year. Although there may be some noisy data during this process, they still believe that the inflation trend is sufficiently entrenched

According to the Financial Times, Philip Lane, Chief Economist of the European Central Bank, stated in an interview on Monday local time that the European Central Bank is confident that the inflation rate will fall to the ECB's target of 2% next year, despite some "noisy" inflation data that will inevitably emerge during this process.

"We have great confidence in the inflation destination for the second half of next year," Lane said in an interview at the London Stock Exchange on Monday. "So we must carefully interpret the economic data we receive, but try to distinguish between noise and key signals."

Prior to the interview with the Chief Economist of the European Central Bank, Christine Lagarde, President of the European Central Bank, also expressed optimism about the trend towards the 2% inflation target in a recent interview. Lagarde stated in the interview that some recent data "could have been better." However, she added, "We believe the anti-inflation trend has deepened enough and will continue over the next 18 months, so we can proceed with the first rate cut." The European Central Bank expects the inflation rate to reach the target of 2% by the end of next year.

The only European Central Bank Governing Council member and Governor of the Austrian National Bank, Robert Holzmann, strongly criticized market expectations of consecutive rate cuts this year, while other officials have at least urged caution in recent days, further dampening market expectations of rapid rate cuts for the remainder of the year. Gabriel Makhlouf, Governor of the Central Bank of Ireland, stated last week that policymakers are not clear about "how fast we will continue, or whether we do not want to know at all."

Jens Weidmann, Governing Council member of the European Central Bank and President of the Deutsche Bundesbank, stated in an interview on Monday that the European Central Bank may not lower borrowing costs again for a period of time, as officials will observe the specific speed at which price growth falls back to the target level.

"We have not declared victory yet," Lagarde recently stated in a media interview. She emphasized that wage growth, unit profits, and productivity are important drivers of service sector inflation in the euro area. In terms of the real economy, she believes that the "economic growth prospects in the euro area have improved" and the economy will gradually strengthen.

When asked why the European Central Bank's latest policy statement did not mention reducing the current level of monetary policy restrictiveness, Lagarde replied, "Removing accommodation is mainly determined by the data we want to rely on, truly understanding our substantive direction and when we will reach 2%." "Given the high degree of uncertainty, forward guidance on monetary policy is not helpful to us," Lagarde said.

Regarding inflation expectations, Lagarde emphasized, "Most core inflation indicators fell in April, price pressures gradually eased, but overall inflation remains stubbornly high. The European Central Bank expects inflation to fluctuate around current levels for the remainder of this year, and then gradually decline to the 2% target level in the second half of 2025."

Following the decision to cut rates by 25 basis points in June, the European Central Bank stated in its announcement that it does not make any pre-commitments to any specific rate path, meaning that consecutive rate cuts in July are unlikely to materialize. The European Central Bank also stated that the inflation outlook has "clearly improved," but at the same time raised its inflation expectations for 2024 After the European Central Bank announced its interest rate decision, interest rate futures traders maintained their expectations that the ECB will cut rates later this year, with a further 25 basis point cut expected before the end of the year. However, there is a significant divergence in expectations regarding the timing of the second rate cut, with December currently being the most probable timing expectation