In a Reuters interview, ECB Vice President Luis de Guindos downplayed concerns over a return to the ultra-low inflation era of the 2010s, despite the recent strengthening of Euro. De Guindos acknowledged that these developments could weigh on headline inflation but emphasized that “the risk of undershooting is very limited.” He maintained that inflation risks are now “balanced”. Euro’s recent appreciation was neither rapid nor volatile, and therefore “not going to be a big obstacle” at 1.15 level.
De Guindos expressed confidence that inflation will rebound after dipping to 1.4% in Q1 2026, citing a still-tight labor market and sustained wage pressures. Compensation growth, supported by union demands, is expected to remain near 3%. This aligns with ECB’s medium-term outlook of returning inflation to its 2% target.
While stopping short of explicitly endorsing a pause, de Guindos indicated that market pricing for just one more rate cut, potentially later this year, was consistent with ECB President Christine Lagarde’s latest messaging.
“Markets have understood perfectly well what the President said about being in a good position,” he noted, adding that investors now correctly anticipate that the ECB is nearing the end of its easing cycle.
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