Philip Lane, ECB’s Chief Economist, said in a speech today that the disinflation process in the Eurozone is “largely completed”. But monetary policymakers now face a “new set of challenges”. Trade tensions, geopolitical instability, and shifting fiscal strategies are now front and center in shaping medium-term inflation risks.
Lane pointed to a wide array of disruptors—from the redrawing of tariff regimes to tighter rules on foreign investment and increasing overlap between economic and security policy. The implications of structural forces like the green transition, AI, and evolving comparative advantages also remain unclear. He emphasized that these issues affect inflation from both demand and supply sides and may unfold on different timelines.
With so many moving parts, Lane called for continued data dependency and a flexible approach to rate decisions, “with no pre-commitment to any particular future rate path.” In this environment, the central bank’s key mission is “make sure that any temporary deviations from target do not turn into longer-term deviations”.
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