Eurozone Inflation Set for Bumpy Path Toward 2% Target, ECB's Lane Says

By Ed Frankl

The near-term outlook for inflation in the eurozone could be bumpy, before holding steady around the European Central Bank's 2% target in 2025, according to its chief economist, ahead of a likely interest-rate cut in June.

Lower labor cost pressures, the gradual lifting of past energy shocks, supply bottlenecks and the pandemic reopening, alongside the impact of the ECB's restrictive policy stance will underpin easing inflation, Philip Lane said Monday in a speech in Dublin.

"This disinflationary dynamic is consistent with both inflation stabilizing at our target in 2025 and a substantial economic recovery, with rising real incomes and improvements in the terms of trade, together with the prospect of disinflation unlocking future interest-rate reductions," he said.

However, he also said that it should be understood that the current phase of cooling inflation is necessarily bumpy.

Swings in energy prices during 2023 will generate fluctuating base effects for monthly inflation readings, as will the reversal of some fiscal support across the 20-nation euro area, Lane said.

Wage pressures, while gradually falling back, remain elevated, he added. Wage growth remains a key concern for ECB policymakers as a symbol of underlying price pressures, particularly in the labor-intensive services sector.

Nevertheless, echoing comments made last week by ECB President Christine Lagarde, Lane said if updated inflation assessments increased confidence that inflation was converging toward the 2% target, it would be appropriate to ease monetary policy.

Markets interpreted that as a signal that the ECB would cut rates at its next meeting on June 6. However, Lane restated that the central bank wouldn't pre-commit to a particular rate path.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

April 15, 2024 09:26 ET (13:26 GMT)

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