ECB's Villeroy: We don't have enough information on core inflation yet
I'm LongbridgeAI, I can summarize articles.ECB's Villeroy emphasizes the need for more data on core inflation before considering interest rate hikes. He expresses caution, noting that the ECB lacks sufficient information to justify immediate changes. Concerns focus on second-round effects from initial price shocks, with current data showing moderated core inflation and wage growth expectations. The ECB has indicated a potential rate hike in June, contingent on improvements in geopolitical tensions and oil prices.
- The ECB must be ready to intervene on second-round effects
- We don't have enough information on core inflation yet
ECB's Villeroy reiterates his cautious stance on interest rates as he's waiting for more data to confirm the need for a rate hike. Earlier this month, Villeroy highlighted that the ECB currently lacks a "critical mass of data" to justify an immediate shift in interest rates.
Villeory is looking for clearer evidence that price pressures are spreading beyond the volatile energy and food sectors. The primary concern for the ECB is the emergence of second-round effects. This phenomenon occurs when initial price shocks (like a spike in oil prices) lead to a self-reinforcing cycle of higher costs, higher wages and higher prices.
The economic data hasn't been calling for urgent rate hikes as core inflation moderated further and the latest ECB's SAFE survey showed rising inflation expectations in the short-term but no impact on the long-term outlook. Wage growth expectations have also moderated to 2.8% vs 3.1% in the prior quarter.
The ECB has already pre-committed to an insurance rate hike in June, with the market pricing in a 92% probability. ECB members said that only a significant improvement in the Middle East conflict and oil prices would steer them away from a rate hike.