In an interview, ECB Governing Council member Edward Scicluna pointed to March economic projections as a crucial factor that could justify a shift in policy, opening the door for rate cuts. “March could be it,” he suggested, “We’ll see how many think that there’s no need to wait for June.”

Acknowledging the “bumpy” path toward achieving ECB’s disinflation objectives, Scicluna emphasized the clear trend of declining inflation. “You should see the writing on the wall and admit objectively that the trend is going down,” he stated.

Despite the possibility of justifying a hold on rate cuts due to various concerns, including geopolitical tensions, Scicluna argued for a more direct approach: “You have to make a judgment; you don’t find these excuses.”

“Let’s face reality — of course, risks are flying all around us,” he said. “But when you get a comprehensive look at things, prices are falling.”

“At a time when demand is falling, I believe you can let off the pedal a bit,” Scicluna said.

In a European Parliament committee hearing, ECB President Christine Lagarde highlighted that the “ongoing disinflation process” is expected to continue “gradually further down over 2024,” attributing this trend to the diminishing effects of past upward shocks and the impact of tighter financing conditions on inflation.

Lagarde noted a “gradual decline” in core inflation, which excludes energy and food prices, while also pointing out the “signs of persistence” in services inflation.

Significantly, Lagarde identified wage growth as a crucial factor, stating it is becoming an “increasingly important driver of inflation dynamics.” ECB’s wage tracker signals sustained wage pressures, although there’s “some levelling off” observed in the latest quarter of 2023. The direction of wage pressures in 2024 largely depends on “ongoing or upcoming negotiation rounds” affecting a broad segment of the workforce.

Furthermore, Lagarde observed that the influence of unit profits on domestic price pressures is on the decline, suggesting that wage increments are being partly accommodated through “profit margins.”

Full remarks of ECB Lagarde here.

ECB Vice President Luis de Guindos acknowledged in a speech that inflation is moving “on the right track” towards target. But he also pointed out several factors that could derail progress.

De Guindos highlighted “wage pressures” as a crucial factor yet to show signs of easing, alongside the potential for “profit margins” to remain robust. Furthermore, he pointed to “heightened geopolitical tensions,” especially in the Middle East, as a risk that could lead to increased energy prices and disrupt global trade, complicating the inflation outlook.

“While we are heading in the right direction, we must not get ahead of ourselves,” he said, indicating that it would take “some more time” to gather necessary data to confirm that inflation is on a stable path towards 2% target.

The coming months are expected to provide crucial insights into underlying inflation drivers, with forthcoming data on wage settlements and firms’ pricing behaviors, along with new economic projections in March, set to inform ECB’s future policy decisions.

Full speech of ECB’s de Guindos’ here.

ECB Chief Economist Philip Lane, in a discussion with Spanish RTVE, described the disinflation progress as “very good.” He added that “the next move is to cut interesting rate”.

Nevertheless, the timing of such rate adjustments would be data-dependent. Also, “the number of rate cuts we make will depend on how much progress we make towards our target,” he added.

In the background, there’s a growing consensus around the first rate cut in the current cycle, with expectations leaning towards April or June as likely windows for action.