In an interview with Corriere della Sera, ECB Chief Economist Philip Lane acknowledged that the December inflation data was “broadly in line with our projections”. He highlighted a “continued progress” in easing of core inflation, yet pointed out existing “headwinds to services inflation.”
A critical point raised by Lane concerns wage growth, which he notes is still rising well above any kind of long-run equilibrium rate”. ECB is expecting “high wage increases” to continue in 2024. “the scale of that will determine the timing and the scale of rate adjustment this year,” he added.
Lane also touched upon ECB’s reliance on data. He mentioned that while new wage data is received weekly, the “most complete dataset” from Eurostat’s national accounts will only be available at the end of April.
This timeline suggests that key policy decisions, especially those pertaining to rate cuts, are likely to be heavily influenced by data available by June meeting.
Finally, Lane’s projection of a “significant recovery” in the European economy this year is tempered with caution, as he acknowledges downside risks to their forecasts. The question of whether 2024 will see a recovery or a continuation of the stagnation experienced in 2023 remains a “big data question” for ECB.
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