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MNI BRIEF: Confident ECB Peak Rate Call Soon Unlikely-Lagarde

(MNI) Sintra

The European Central Bank won’t be able to “state with full confidence” in the near future that the peak in interest rates have been reached, increasing more uncertainty over the central bank’s path after the Governing Council meeting in July, president Christine Lagarde said during her speech in Sintra

The nature of Eurozone inflation is changing from profits that “contributed around two-thirds to domestic inflation in 2022” to wage demands by workers trying to 'catch up' the loss in purchasing power, Lagarde said. On this “second phase” of inflation the ECB needs to ensure firms absorb rising labour costs in their margins, she said, noting that “if monetary policy is sufficiently restrictive, the economy can achieve disinflation overall while real wages recover some of their losses”

If firms reject that absorption and were to regain 25% of the lost profit margin “that our projection foresee” inflation would be substantially higher than the baseline at almost 3% (MNI INTERVIEW: Wunsch Sees ECB Sept Hike Without Slide In Core)

“We are seeing a decline in the inflation rate as the shocks that originally drove up inflation wane and our monetary policy actions are transmitted to the economy”, Lagarde said, noting that the pass-through of those shocks are still ongoing.

MNI Rome Bureau | +34-672-478-840 | santi.pinol.ext@marketnews.com
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MNI Rome Bureau | +34-672-478-840 | santi.pinol.ext@marketnews.com
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