The Euro zone inflation seems to be returning to 2 per cent, Reuters reported citing Vice President of the European Central Bank (ECB), Luis de Guindos as saying on Wednesday.
However, the ECB requires more time and data to confirm that the record-high interest rates have achieved their intended effect.
Interest rates have reached an all-time high since September, while policymakers continue to resist discussions of rate cuts, asserting that any potential policy easing lies further in the future than investors anticipate.
Investors have adjusted their expectations to 113 basis points of cuts this year, a decrease from the previous 150 basis points. They foresee the initial action in either April or June.
“It will take some more time before we have the necessary information to confirm that inflation is sustainably returning to our 2 per cent target.” de Guindos told a conference in Split, Croatia.
De Guindos stated that high wage pressures persist and the ECB lacks enough data to indicate any easing, posing a potential risk for price increases.
He suggested that profit margins might withstand more than expected, while Middle East tensions could escalate energy costs and disrupt global trade.
Despite ongoing disinflation, possibly aided by sluggish growth, he does not foresee near-term improvement.
The effects of the ECB’s previous rate increases continue to suppress demand. Given the history of errors in projections and the prevailing uncertainty, de Guindos emphasised the need for the ECB to consider forecasts along with incoming data in the upcoming months.
