ECB expects inflation to fall in 2024, but the evolution of rates will depend on data

The president of the European Central Bank (ECB), Christine Lagardesaid this Thursday that the institution expects inflation to continue moderating in 2024, but insisted that its decisions on possible changes in interest rates will depend on the data it receives.

In her last debate on monetary policy with the Economic Affairs Committee of the European Parliament before the European elections next June, Lagarde said that the latest data confirm the downward process of inflation and it is expected that it will fall more gradually over the course of the year. 2024.

The president of the ECB refused, however, to anticipate when interest rates could be lowered and insisted that they need more data to confirm that the inflation will reach the sender’s target.

“We are confident that directionally we are heading towards 2% in the medium term in time, but (…) we have to be more certain and we do not have enough yet at this moment to be sure that it is sustainable”he explained.

“We don’t want the risk of it being reversed, which would be to waste everything we have done and would lead us to have to take more measures,” Lagarde said when asked about the MEPs.

As explained by the president of the ECB In his speech to the commission, the dissipation of the impact of past crises that drove prices higher and tougher financial conditions will help push down inflation this year.

In January, the annual inflation rate in the eurozone fell to 2.8% after a rise of half a point in December and core inflation – which excludes energy and food – fell to 3.3%, in both cases one tenth less than the previous month.

“The current disinflation process is expected to continue, but the Governing Council needs to be confident that it will sustainably take us to our 2% target,” Lagarde said.

“We will continue to follow a data-dependent approach to determine the appropriate level and duration of tightening, taking into account the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission,” He added in line with the message launched at the last meeting of the Government Council in January.

At that meeting, the organization decided to maintain the type of interest governing at 4.5%, as well as the credit facility – which lends to banks overnight – at 4.75% and the deposit facility – which remunerates excess overnight reserves – at 4%.

Lagarde defended today before MEPs that rates are at levels that, “maintained for sufficient time will make a substantial contribution to ensuring that inflation returns to the 2% medium-term objective in a timely manner.”

Salaries push up

Regarding the factors that will influence the evolution of prices in the coming months, the president of the ECB highlighted that the increase in salaries is expected to “become an increasingly important driver of inflation dynamics in the coming quarters.” ”.

He added that the salary monitor of the ECB “continues to indicate strong wage pressures, but the agreements indicate stabilization in the last quarter of 2023” and stressed that their impact in 2024 will depend above all on the result of the collective negotiations.

These wage increases are, however, “partially cushioned by the profit margins” of the companies.

Lagarde also pointed out that, although core inflation has fallen gradually, that of services “shows signs of persistence.”

Regarding the macroeconomic situation, the president of the ECB pointed out that the weakness of activity affects broad sectors and that the data suggests that it will continue “in the near future”, although some future indicators point to a rebound this year. .