ECB’s Schnabel: Incoming data signals tough final stretch in inflation battle

ECB Executive Board member Isabel Schnabel highlighted in an FT interview the challenges facing Eurozone as it approaches what she terms the “last mile” in the fight against inflation. Despite rapid disinflation experienced due to the reversal of supply-side shocks, Schnabel emphasizes that the region is now entering a “critical phase”. This phase demands precise calibration and transmission of monetary policy, focusing on curbing “second-round effects” to prevent inflation from becoming entrenched.

“Recent incoming data do not allay my concerns that the last mile may be the most difficult one,” Schnabel remarked, pointing to persistent issues such as “sticky services inflation” and a “resilient labour market” that complicate ECB’s policy decisions.

Additionally, she noted “notable loosening of financial conditions” driven by market anticipation of a central bank pivot, which could undermine efforts to stabilize prices.

Furthermore, Schnabel expressed concern over potential new supply chain disruptions, spurred by recent developments in the Red Sea, adding another layer of complexity to the inflation outlook.

“This cautions against adjusting the policy stance soon,” she stated. “We must be patient and cautious because we know, also from historical experience, that inflation can flare up again.”

Full interview of ECB’s Schnabel here.