ECB chief economist Philip Lane said overnight that while headline inflation has hovered near target for most of the year, the picture is still flattered by energy deflation. Non-energy inflation remains “well above 2%,” and Lane stressed that a further slowdown is required to ensure inflation is sustainably anchored at target. Nevertheless, he added “We’re confident that’s going to happen because everything we look at tells us wage dynamics are set to decelerate further.”
Lane also addressed concerns around U.S. tariffs and Europe’s export exposure. He argued the hit may be smaller than feared, as the AI-driven expansion and high U.S. government spending are supporting American demand. Under these conditions, firms still have room to pass through tariff-related costs to U.S. importers and consumers. While the U.S. is an important partner, Lane underlined that it is “not the predominant driver of the European economy.”
However, he warned that tariffs are reshaping global trade flows in meaningful ways, particularly in Asia. China is exporting more to Southeast Asia, Southeast Asia is exporting more to the U.S., and China is simultaneously increasing its footprint in Europe and other markets. Lane called this a “very big reconfiguration” of the global system, one that intensifies competitive pressure on European firms even at home.
