European Central Bank Chief Economist Philip Lane said consumer-price growth is probably near its zenith, while acknowledging that borrowing costs will be raised again.
“It’s probably too early to make that judgment whether inflation is cresting, “but I would be reasonably confident in saying that it is likely we are close to peak inflation,” Lane told Milano Finanza newspaper in a interview published on Tuesday. “But whether this already is the peak or whether it will arrive at the start of 2023, is still uncertain.”
“We do expect that more rate increases will be necessary, but a lot has been done already,” Lane said, according to a transcript on the ECB website. “The starting point is different now. We’ve already hiked rates by 200 basis points,” he said. “We should take into account the scale of what we have already done.”
On consumer prices, the ECB chief economist said that he couldn’t “rule out” some extra inflation early next year. “Once we are past the initial months of 2023, later on in 2023 -- in the spring or summer -- we should see a sizeable drop in the inflation rate. That said, the journey of inflation from the current very high levels back to 2 per cent will take time.”
Asked whether the inflation rate might drop to 6 per cent to 7 per cent in 2023, he said that “the initial downshift from the current high rates will be to around that level with a further reduction to follow.
Still, “we do think there will be a second round of inflation,” Lane said, citing bigger-than-usual pay increases over the next three years. “That is why it will take some time to return to our 2% target. So the second round effects will drive inflation next year and in 2024.” -- Bloomberg
