ECB Executive Board member Benoit Coeure said in a speech yesterday that “the euro area economy has now enjoyed five years of uninterrupted growth”. And, GDP is “well above the levels we observed before the great financial crisis.”

He also pointed out that labor market has “improved notably” in recent years. Employment has risen by 9.2m since mid-2013. Unemployment rate dropped to 8.1% in August and hit the lowest level in 10years. Participation rate also rose 1.5 to 64% from a decade ago.

On inflation, Coeure added that “with stronger growth and rising employment, we also see a gradual build-up in price pressures”. Employee compensation have “finally started to recover” Also, he noted that as they are growing faster than the rate of inflation, many people are seeing their real incomes rising.

Overall, he said, it is fair to say that the euro area economy is in the best shape it has been in for many years.

Full speech here.

In a CNBC interview, ECB President Christine Lagarde said policy makers try to asses the situation “based on figures, on data, on facts”, rather than on basis of “hearsay, assumption here, price increases there.”

She noted, things have “picked up faster” for growth, inflation and employment, and it’s a “package of good news”. For prices, ECB thought “there will be a return to much more stability in the year to come because many of the causes of higher prices are temporary.”.

Full interview here.

ECB Governing Council member Olli Rehn said on Saturday, “If we reacted strongly to inflation in the short term, we would probably cause economic growth to stop. It’s better to look beyond short-term inflation and look at what inflation is in 2023, 2024.” He expected inflation to be close to the 2% target in the coming years.

“We will have time to react in the March meeting and in later meetings if it looks like the situation is markedly different than it now appears,” Rehn added.

Another Governing Council member Ignazio Visco said, “the monetary policy stance remains expansionary, though the gradual normalization will continue at a pace consistent with the economic recovery and changes in the outlook for prices.”

“I do not believe that the overall picture underlying this stance has changed significantly,” Visco said. Still, “in the short term, there has been an increase in the risk of consumer prices growing faster than expected and production activity growing more slowly.”

ECB Vice President Luis De Guindos said today the central bank has to widen its monetary policy toolkit to ensure its effectiveness. Though, he emphasized that monetary policy alone cannot address all problems. He urged country with fiscal spaces to do more. He added that European economy is not going to fall into recession but growth will be below potential.

Separately,chief economist Philip Lane said euro’s exchange rate is not a policy target for the ECB. But, “It’s plausible that the impact of rate cuts on the euro exchange rate has intensified over time.”

In an interview with Jutarnji List, ECB Executive Board Isabel Schnabel underlined the unpredictability surrounding the current inflation trajectory, cautioning against premature optimism despite recent encouraging data.

Schnabel stated, “We cannot say that we are at the peak (interest rates) or for how long rates will need to be kept at restrictive levels.”

She emphasized the importance of closely monitoring three key metrics to make future monetary policy decisions: inflation outlook, dynamics of underlying inflation, the efficacy of monetary policy transmission. Encouragingly, she noted that “all of them are moving in the right direction.”

However, the Board member didn’t shy away from highlighting possible headwinds. She pointed out, “I still see upside risks to inflation,” flagging potential supply-side shocks and stronger-than-anticipated wage growth, which could be offset by lower productivity growth. Firms might also face difficulty in absorbing these increased costs, which, if realized, could necessitate further hikes in interest rates.

While Schnabel acknowledged the downward trend in inflation as “encouraging,” she emphasized that it still remains considerably above the ECB’s 2% target. The aim, she said, should be to hit this target by 2025 to ensure inflation expectations “firmly anchored”. However, she cautioned about the challenges in reaching this goal, noting that the “last kilometre” may be the most challenging.

The recent surge in oil prices was another point of concern for Schnabel, suggesting that inflation could face upward pressures from unforeseen supply shocks, especially in sectors like energy and food. She added a call for vigilance, urging that “we must not be complacent, and we should not declare victory over inflation prematurely.”

Full interview of ECB Schnabel here.