ECB Chief Economist Philip Lane acknowledged the ongoing momentum in inflation but predicted a shift toward disinflation later this year.
Speaking at a panel in Berlin, Lane said, “There’s still a lot of momentum in inflation, but later this year and ongoing a lot of this inflation is supposed to reverse, partly because of the reversal of the underlying shocks, partly because of monetary policy.”
Despite this outlook, Lane noted that there is still momentum in food and core inflation, which runs counter to the decline in energy inflation.
Discussing businesses’ expectations, Lane mentioned, “This year (businesses) expect margins to fall quite a bit, because they may face cost increases, including labour costs increases, but they won’t be able to increase prices by so much because demand is normalising.”
He also emphasized the importance of rebuilding real wages in the labor market, stating, “There’s a very basic imperative for the labour market to rebuild real wages.” Lane explained that this transition phase, which will last several years, helps clarify why inflation is not immediately dropping back to 2%.
