by (Bloomberg) — The European Central Bank does not yet have enough evidence that inflation threats have passed, President Christine Lagarde and her top economist said — fueling expectations that officials will take a break from cutting interest rates this month.
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With the eurozone labor market strong, the ECB has time to assess incoming information, Lagarde said Monday in Sintra, Portugal, where she opened the ECB’s annual central bank forum. Speaking on Bloomberg TV on Tuesday, chief economist Philip Lane said the June inflation reading will not be enough to fully gauge closely watched utility prices.
“We are still facing some uncertainty about future inflation, particularly in terms of how the earnings, wage and productivity nexus will evolve and whether the economy will be hit by new supply shocks,” Lagarde said. . “It will take time for us to gather enough data to be confident that the risks of above-target inflation have passed.”
The remarks suggest a preference for keeping borrowing costs unchanged when the ECB meets later this month. Since the initial cut in June, investors have looked to Lagarde for indications of how quickly rates will be cut — and whether the political drama in her home country will affect monetary policy in any way.
Monday’s speech did not mention France – nor did it offer specific guidance on the ECB’s way forward, with Lagarde reiterating her commitment to make decisions as data comes in.
“The strong labor market means we can take time to gather new information, but we must also be mindful that the growth outlook remains uncertain,” she said. “All of this supports our determination to be data-driven and make our policy decisions on a meeting-by-meeting basis.”
Read more Sintra: ECB meets as France’s election drama overshadows rate cuts
Lagarde said officials’ assessment of the inflation outlook is “informed by, but not limited to, our projections” – countering speculation among analysts that the ECB will only consider changing rates at quarterly meetings when they are available. new forecasts.
She also emphasized that policymakers will not be thrown off course by any particular piece of information, stressing in the past that the road back to 2% will be bumpy and may include temporary setbacks.
“While the flow of new information continually adds to and improves our view of medium-term inflation, we are not driven by any specific data point,” Lagarde said. “Data dependence does not mean data point dependence.”
What ECB officials say in Sintra…
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Gediminas Simkus from Lithuania — click here for the full interview
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Pierre Wunsch of Belgium — click here for the full interview
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Madis Muller from Estonia – click here for the full interview
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Bostjan Vasle from Slovenia – click here for the full interview
On Tuesday, policymakers will get an update on price pressures across the euro area in June. This could indicate a slight advance towards the 2% target, with economists estimating consumer price growth moderated to 2.5% from 2.6%.
Against that backdrop, markets are betting on one or two more cuts this year — a scenario Finland’s Olli Rehn described as “reasonable,” though he also said officials could not commit to a certain path.
The Bank for International Settlements warned on Sunday that central banks should be cautious about cutting rates too quickly, to avoid reigniting inflation.
Lagarde agrees.
“Our work is not done,” she said. “We must be vigilant.”
–With assistance from Marilen Martin.
(Updates with quotes from ECB’s Muller, Vasle.)
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