ECB minutes reveal growing confidence in inflation control, but clear wage turnaround awaited

ECB’s meeting minutes for the December 13-14 session indicate that officials believe monetary policy is “working as intended”, with disinflationary processes “proceeding well and probably more strongly than had been anticipated”. The decline in November’s inflation was described as “encouraging” and “broad-based,” encompassing core inflation components, which bolstered confidence in bringing inflation back to target in a timely manner.

One significant observation was that services inflation had begun to ease, suggesting that inflationary pressures across various components were diminishing. This trend was attributed in part to weak demand influenced by monetary policy measures.

However, ECB officials highlighted the uncertainty surrounding future wage dynamics, noting that “convincing evidence of a sustained turnaround in wages had yet to emerge.” This is a crucial factor for ECB, as a more definitive shift in wage trends is necessary to ensure confidence in inflation’s return to the 2% target.

In their decision-making, ECB officials chose to keep the three key interest rates unchanged, emphasizing the importance of their data-dependent approach. This approach focuses on the three elements of ECB’s reaction function, providing a structured framework for monetary policy decision-making and communication. The meeting minutes underscored that this approach is central to the Governing Council’s meeting-by-meeting orientation, allowing for the flexibility required in the current economic context.

Full ECB accounts here.