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ECB's Lane: Inflation has declined quicker than expected

While giving a virtual guest lecture at the University of Stanford, European Central Bank (ECB) Chief Economist Philip Lane noted that while inflation has declined at a faster pace than the ECB had initially expected, policy transmission continues to lag, and tightening effects from previous rate increases continue to unfold.

Key highlights:

  • The ECB is not pre-committing to any particular rate path.
  • The ECB will continue to follow a data-dependent approach.
  • Expectations of future inflation continue to normalize, and leaving nominal rates unchanged implies a mechanical increase in real rates.
  • Policy rates will stay restrictive for as long as needed.
  • Inflation has declined more quickly than expected.
  • Wage growth is moderating, but remains elevated.
  • The next phase of the disinflation process likely more gradual.

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