Joachim Nagel, Member of the Governing Council of the European Central Bank and President of the Deutsche Bundesbank, said that despite a significant decrease in consumer inflation from its peak level, price growth remains stubbornly high. He added that given the current situation, the ECB should be patient and not rush to lower interest rates.
The ECB has consistently rejected talk of monetary easing, arguing that wage growth is still too fast. Investors now expect the ECB to cut rates by only 88 basis points this year, compared to 150 basis points a few weeks ago.
"I think it's too early to cut interest rates. We will get a more detailed picture of how domestic price pressures are developing only in the second quarter. Then we can consider easing the policy," Nagel said, adding that crucial figures on 2024 wage settlements will only come out in May.
"Early interest rate cuts run the risk of not reaching the inflation target and could, in extreme cases, force the ECB to raise rates again, which is a costly mistake," Nagel warned.
According to official data, consumer price growth slowed in January, confirming experts' forecasts and preliminary estimates. Meanwhile, core inflation fell to its lowest level since March 2022. According to the report, the consumer price index rose by 2.8% per year after an increase by 2.9% per year in December. Meanwhile, on a monthly basis, the consumer price index fell by 0.4%, confirming economists' forecasts and offsetting the December increase (+0.2%). Eurostat reported that the core consumer price index - excluding energy, food, alcohol and tobacco - rose by 3.3% per year, as expected, after an increase by 3.4% per year in December. Core inflation has been declining for the 6th month in a row.
Last week, the European Commission cut the EU growth forecast and expects inflation to fall further. The Harmonised Index of Consumer Prices (HICP) inflation in the EU is set to decline faster from a steep 6.3% in 2023 to 3.0% in 2024, further dropping to 2.5% in 2025. In the euro area, inflation rates are forecasted to slow from 5.4% in 2023 to 2.7% in 2024 and 2.2% in 2025. The 2024 inflation forecast for the euro area has been revised down from 3.2%, while 2025 was left unchanged.