Underlying inflation progress not enough, says ECB’s Lane
The European Central Bank is seeing some progress in its efforts to push down underlying inflation but this is not yet enough, ECB chief economist Philip Lane told a conference in Riga today.
Professor Lane said he does not take a lot of comfort from the recent rapid fall in overall inflation because this is largely driven by the reversal of big energy price increases from a year earlier.
This rapid decline that lowered the headline rate to 2.9% last month is likely over for now and price growth will be in the “high twos or low threes” in 2024 before a drop back to the 2% target in 2025, he added.
Meanwhile, euro zone consumers have raised their expectations for inflation over the next 12 months to 4%, a European Central Bank survey showed today, in a potential headache for the ECB in its effort to rein in prices.
Households’ forecasts for inflation are by nature imprecise but they can influence wage demands, spending and saving – three crucial factors for the setting of retail prices.
The ECB’s Consumer Expectation Survey, carried out in September and released today, showed the median respondent thought inflation would be 4% in the next 12 months, up from 3.5% in August and climbing to the highest level since the spring.
The ECB also uses the survey as a gauge of whether households are keeping faith in its ability to bring inflation back to its 2% target over the medium term amid a global debate about whether such goals should be raised.
Here the picture was at least not getting worse, with the median respondent putting inflation at 2.5% in three years’ time, unchanged from the previous survey round but still above where the ECB’s goal.
The ECB also raised its inflation forecast for 2024 in September, mainly as a result of higher energy prices, as it raised interest rates to record highs.
It now expects prices to rise by 5.6% this year, 3.2% in 2024 and 2.1% in 2025.
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