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ECB Struggles to Meet Price Target, More Efforts Needed, Lane States

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ECB Chief Economist Stresses the Need to Tame Inflation

The European Central Bank (ECB) must continue its efforts to control inflation, despite the current level of interest rates being the "base case," according to Chief Economist Philip Lane. Speaking at a conference in Vilnius, Lithuania, Lane highlighted that price increases are still well above the target of 2% and emphasized the need to bring inflation down. He stated that ECB borrowing costs have reached a level that will contribute significantly to achieving the inflation target. However, Lane cautioned against fixating on the December meeting, as uncertainty remains and critical decisions should not be solely focused on a single date.

Challenges in Achieving the Inflation Target

Lane acknowledged that reaching the ECB's 2% target will take time, with the most recent forecast predicting it to be achieved in the third quarter of 2025. He emphasized the importance of monitoring energy prices, which have been volatile, and highlighted the need to keep interest rates sufficiently high to return inflation to the target.

Additional Measures and Perspectives

Some policymakers, such as Tuomas Valimaki, standing in for Finland's Olli Rehn on the Governing Council, have suggested that more rate hikes may be necessary. Valimaki stated that any further delay in achieving the inflation target cannot be considered acceptable due to inflation staying above the target for an extended period. In conclusion, the ECB's focus on taming inflation remains crucial, despite the current level of interest rates. Chief Economist Philip Lane emphasizes the need to bring inflation down and warns against overemphasis on a single meeting. Achieving the inflation target will require ongoing monitoring of energy prices and maintaining interest rates at an elevated level.

Hot Take: The Impact of ECB's Inflation Control Efforts on New Businesses

The European Central Bank's (ECB) ongoing efforts to tame inflation, as stressed by Chief Economist Philip Lane, could have significant implications for new businesses. The ECB's focus on reducing inflation, despite the current interest rates, signals a challenging economic environment that could impact the cost of borrowing for these businesses.

Implications of High Inflation

High inflation rates can increase the cost of goods and services, impacting the purchasing power of consumers. For new businesses, this could mean reduced demand for their products or services, potentially affecting their profitability and growth.

Impact of Interest Rates

Higher interest rates, as suggested by some policymakers, could increase the cost of borrowing for new businesses. This could limit their ability to invest in growth opportunities, posing a significant challenge, especially for businesses that rely heavily on borrowed capital. In conclusion, while the ECB's efforts to control inflation are crucial for the overall economy, they could present certain challenges for new businesses. These businesses will need to closely monitor these developments and adjust their strategies accordingly to navigate the evolving economic landscape.
Story First Published at: https://financialpost.com/pmn/business-pmn/ecb-not-yet-at-price-target-more-work-to-be-done-lane-says
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