European Central Bank (ECB) chief economist Philip Lane said this Monday that current data on inflation indicate that interest rates will continue to rise even after this month’s meeting.
Speaking at a conference today in Dublin, the Irish economist stressed that the first signs of declining inflation are becoming visible, but pressures remain high, so it is imperative that the ECB act beyond this month’s meeting (Frankfurt had already given indications that would raise the key rate again at the March 16 meeting).
Lane believed that inflationary pressures are now lower on the commodities and energy side, as well as economic activity and supply constraints, but he added that price indicators related to food and the labor market (mainly wages) remain a risk to inflation.
So, he said, with the ECB prioritizing 2% inflation over the medium term, current information on underlying inflationary pressures suggests that “it will be appropriate to raise rates even after the March meeting.”
The ECB’s chief economist also warned that the reduction in demand that will result from the tightening of eurozone monetary policy means that “excessive increases in prices and wages will not be sustainable”.
The ECB’s next monetary policy meeting is scheduled for March 16 and a likely increase in its interest rates by another 50 basis points has already been announced in advance.
ECB President Christine Lagarde, in a recent interview, opined that “it is impossible to say” how far interest rates should rise.
Since July 2022, ECB interest rates have risen sequentially and the key (refinancing) rate is currently at 3%, at a time when inflation is well above the institution’s medium-term target of 2%.
According to Eurostat, inflation in the eurozone fell from 8.6% in January to 8.5% in February, but the decline was less pronounced than expected due to high food prices.
Last week, the Reuteurs news agency reported that the ECB leadership had discussed the impact of corporate profit margins on the wave of inflation.
According to Reuteurs, presentations were given at a meeting of central bank governors showing how corporate profit margins have risen when they were expected to fall due to rising costs, penalizing consumers.
In November, the governor of Banco de Portugal, Mário Centeno, said in an interview with Público that price increases “in many cases go beyond what can be expected given the inflationary pressures arising from supply” and that one should ask for restraint in wages but also in the profit margins of companies.
“Central banks have always referred to inflationary pressures through labor costs as one of the sources of second-round effects on prices. It is an effort necessary for the functioning of the economy and wage bargaining, but essential to contain inflation But equally important is the role of profit margins in this phenomenon. There was a decline in profit margins in 2020, but then a huge recovery. In fact, companies did well in an economic downturn to ramp up their savings and be prepared to are quick to respond. the time of recovery. This was extraordinary, but it means also taking care of the recovery cycle of profit margins. And it is just as important as wages,” said Centeno.
Source: DN
