06/23/2024 – 12:19
European Central Bank (ECB) board member Isabel Schnabel said today that the “last stage” of the euro zone’s disinflation process is proving unstable. Schnabel had already stated that the so-called “last mile” would probably be more difficult than the previous phases. In a presentation during the 2024 Global Economy Prize event, held this Sunday, Schnabel reinforced that the scenario is one of an accelerated fall in goods inflation, while services inflation appears to be resilient.
She highlighted that the fall in inflation was driven by the reversal of previous shocks on the supply side. She also cited the adoption by the ECB of measures to combat the “unprecedented” increase in inflation.
Furthermore, the leader indicated that the accumulation of labor weighs on labor productivity and weakens the transmission of monetary policy. Schnabel suggested that there are early indications of slowing wage growth, supported by falling inflation expectations, and that companies are beginning to absorb higher wage costs into profit margins.
She also highlighted that there is a “notable slowdown” in bank lending due to the sharp increase in loan rates, at the same time that higher interest rates have encouraged an increase in savings, implying lower consumption. Finally, the leader cited geopolitical risks and climate change as potential new shocks on the supply side.
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