ECB’s chief economist says inflation will fall later this year

Philip Lane said current high levels of inflation, which hit a record 5% across the Eurozone in December, are part of a ‘pandemic cycle of inflation’.

James Ward
Friday 07 January 2022 16:09
Philip Lane, European Central Bank’s chief economist (Niall Carson/PA)
Philip Lane, European Central Bank’s chief economist (Niall Carson/PA)

Inflation is set to come down this year with current high rates part of a “pandemic cycle of inflation”, the European Central Bank’s chief economist has said.

Data from Eurostat shows inflation across the Eurozone rose to 5% in December, a new high for the 19 countries using the single currency.

In Ireland, the rate hit 5.7% last month, with energy costs in particular hitting consumers in their pockets.

This three-year period - 2020, 2021, 2022 - is basically part of a pandemic cycle, if you like, of inflation. So in that sense, it should not be, I think, interpreted in terms of compared to historical norms

Philip Lane, ECB chief economist

The ECB’s Philip Lane said that while surging energy prices are “a major concern”, they anticipate inflation rates will come down this year, and continue to decrease in 2023 and 2024.

“In this year inflation is going to come down. It’s going to be above where we want it to be in the long term,” he told RTE.

“But this three-year period – 2020, 2021, 2022  – is basically part of a pandemic cycle, if you like, of inflation.

“So in that sense, it should not be, I think, interpreted in terms of compared to historical norms. The pandemic is a unique episode.

“Only a few weeks ago in our December meeting, we looked at the prognosis for this year, for 2023, 2024.

“Our analysis is that inflation this year will be coming down in 2022.

“And, in fact, we project inflation to be a little bit below our target in 23/24.

“So, yes, we hear numbers like 5% in December 2021. That sounds so strange after a long period of low inflation.

“But again, to repeat, we do think this year the inflation pressures will be easing over the course of this year and in fact, we think inflation in 23, 24 will be a little bit below where we would like it to be in terms of our targets.”

Rising energy costs have been at the core of the soaring inflation rate.

Analysis by price comparison website Bonkers.ie has shown that price hikes could increase the annual household energy bill by as much as 1,300 euro.

Mr Lane, a former governor of the Central Bank of Ireland, said he expects pressure in the energy sector to ease this year.

But Europe’s position as a major importer of energy and external geopolitical factors add uncertainty to the mix.

“The fact that energy prices have risen so much is a major concern,” he said.

“The European economy is a major importer of energy. Collectively Europe, by paying so much more for energy inputs, this is a major economic issue.

“Now, the fact that prices have risen so much does mean, compared to last year’s rate of increase, there’s probably less upside this year.

“But there are factors we need to look at, geopolitical issues among them for sure.

“On the other hand, what we do think is supply pressures should ease in the aggregate this year.

The fact that energy prices have gone up so much is a major economic policy issue in general

Philip Lane, ECB chief economist

“In the oil markets, we think supply pressures will ease, but as you indicated, the gas market is quite important for energy in Europe, and there are all sorts of different dynamics going on there.

“But I would remind you, of course, that supply responses are happening there as well in terms of, for example, the shipping of liquefied natural gas around the world, it’s being redirected to Europe.

“So we will keep an eye on this. It’s a very important issue, but it’s much broader than the ECB issue. The fact that energy prices have gone up so much is a major economic policy issue in general.”

Mr Lane also said that he did not anticipate that the ECB would make changes to borrowing rates, which have hit historic lows in recent years.

“When we think the high inflation is not going to be durable, the case for altering our interest rate policy is not there,” he said.

“But of course, let me repeat, we will have new data coming in all year long and you can expect the ECB to pay a lot of attention to all of that data.”

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Please enter a valid email
Please enter a valid email
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Please enter your first name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
Please enter your last name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
You must be over 18 years old to register
You must be over 18 years old to register
Opt-out-policy
You can opt-out at any time by signing in to your account to manage your preferences. Each email has a link to unsubscribe.

By clicking ‘Create my account’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in