The ECB should take its time to correct interest rate cuts and will have a clearer picture of inflationary pressures in June, the ECB's chief economist told CNBC.
“A lot of evidence is accumulating, but it's also fair to say that moving out of this holding phase, we've been stuck since last September since a big hiking cycle, and we have to take our time to correct that,” Philip Lane told CNBC's Steve Sedgwick on Thursday. : “From continuing to reconnect with limitations.”
Lane, the Governing Council member, said the euro zone central bank meeting in March was an “important milestone” in accumulating evidence and showed that “the disinflation process is continuing.” During the meeting, the European Central Bank held interest rates and issued updated macroeconomic forecasts, lowering this year's inflation forecast to 2.3% from 2.7%.
Inflation in the 20-nation bloc fell to 2.6% in February.
In line with the ECB's March message, Lane said more data was needed, especially on wages, and that the Governing Council “will learn a lot by April, and a lot more by June” – the date of its next two meetings.
At a press conference after the March meeting, ECB President Christine Lagarde said the market's pricing on the timing of interest rate cuts – which points to a start in June as of Thursday – “seems to be converging better” with the central bank's view. .
June has emerged as a key date in market commentary, as it is set to mark the first meeting where the European Central Bank can evaluate spring data on this year's wage negotiations.
Asked about other colleagues on the ECB's Governing Council who had suggested cutting interest rates before the summer, Lane said he believed this was a reference to the second quarter, which would include June.
“I think the second quarter is when we'll be far enough into 2024 to see more wage dynamics, see more price pressures.”
He stressed that it was important, in his position, to “avoid trying to provide calendar guidance to the market.”
“Once we are confident enough that we will get back on target in a sustainable way, in a timely manner, that is the time to move to the next phase,” he said.
Scope for lower profits
Policymakers have repeatedly emphasized that many of the causes of the inflationary cycle have subsided, such as rising energy prices and supply chain issues. But they remain concerned about domestic inflationary pressures caused by corporate profits and rising wages.
Bank of England Governor Andrew Bailey sparked controversy in 2022 for suggesting that workers should not ask for a pay rise to avoid sparking inflation.
Lane said on Thursday that although the ECB's forecasts relied on some moderation in wage growth, it was “important” that people's inflation-adjusted wages would improve, and that companies would have to tolerate lower profits to allow that to happen.
“Wages have not been the source of this inflation problem,” he said. “But in terms of making sure we get back on target, and the interaction between wages and earnings, our expectations are based on a degree of wage deceleration.”
“It is important to say that we need to see workers' real incomes improve, to rebuild, not just this year, [but] The following year. “So we are allowing higher wage increases to the natural rate.”
“But we also need to see companies absorb a fair amount of that into lower earnings. Earnings were very high in 2022, and there is room for earnings to come down. That's part of the open questions we're asking,” Lin added. Owns.”
