MNI BRIEF: Underlying Inflation Key For ECB Rates-Makhlouf

The European Central Bank needs to keep rates at restrictive levels to dampen demand and unsure underlying inflation and price expectations do not keep headline inflation above the 2% target, Central Bank of Ireland governor Gabriel Makhlouf told an MNI Connect event Tuesday.

“Absent future shocks to energy and commodity prices, the outlook for inflation over the medium term – the ECB’s 2% target – will be closely linked to developments in underlying inflation,” Makhlouf said, according to the text of his opening remarks.

“Indirect effects are still working their way through the economy as the input price increases we saw last year pass through more slowly into core inflation, and domestic cost pressures emerge in the form of wages and profit margins,” he said, though he noted that March projections foresaw slowing growth in wages and profit margins over the next three years. “If this turns out not to be the case … it would call for a stronger monetary policy response.”

So far, there has been no indication that expectations have become de-anchored from our inflation target, he noted, adding that decisions will be taken on a meeting-by-meeting basis.