A further interest rate hike “will be appropriate” in May if the European Central Bank’s forecast, which still expects high inflation, materializes despite recent financial strains, its chief economist said on Thursday.
In March, the ECB published a series of macroeconomic forecasts for the coming months, notably counting on inflation excluding energy and food which will be higher in 2023 than in 2022.
If, by the time of the May meeting, these projections are on track to be met, then a rate hike will be appropriate, said Philip Lane, a member of the institution’s board, in an interview with the Cyprus News Agency.
The ECB established its March forecasts before the emergence of tensions in the financial markets following bank failures, these tensions creating additional uncertainty for the economy and prices.
However, if the basic scenario that we developed before the banking stress continues, it will be appropriate to have a new increase in May, hammers the chief economist whose voice counts within the decision-making body of the ECB.
According to these latest forecasts, headline inflation is expected to decline significantly during 2023 – 5.3% on average compared to 8.4% in 2022 – due to base effects linked to the fall in oil prices. energy over a year and the alleviation of tensions in supply chains.
But the so-called underlying inflation, rising prices excluding energy and food, will on the contrary be higher on average this year.
The ECB explains it by the companies which inflate their margins by passing on the high energy prices with delay and by the strong past depreciation of the euro.
Inflation remains high and uncertainty about its evolution has increased, requiring a robust strategy for the coming period, said the institution’s president Christine Lagarde at the end of March.
The ECB, which is aiming for 2% forward inflation, has so far raised its interest rates at unprecedented speed, raising them by 350 basis points since July, in an attempt to contain the rise in prices which reached 10% in October in the euro zone, in the wake of the Russian invasion of Ukraine.