The European Central Bank needs evidence that underlying inflation is firmly in retreat before it can be considering pausing interest-rate increases, according to Governing Council member Pierre Wunsch.
Speaking to Bloomberg TV, the hawkish Belgian central bank chief said July’s meeting — when another hike is all but assured — is too soon but the following one, in September, is possible.
“Over the next three readings, it should give a clear signal that core is indeed going down,” Wunsch said Tuesday. “If not, I’m afraid we have to do more.”
The comments — on the sidelines of the ECB’s annual retreat in Sintra, Portugal — come after President Christine Lagarde said officials probably won’t be able to declare the end of their historic tightening push anytime soon.
Meeting Wunsch’s conditions for a pause in September may be tricky too: Economists reckon core inflation, which strips out energy and food costs, probably edged higher this month, boosted by statistical effects in Germany.
“We’ll probably have to do more on the monetary front because fiscal is still supportive,” Wunsch said, referring to fiscal aid to ease the energy crisis.
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In the meantime, the 20-nation euro-zone economy is weakening, having already suffered a mild winter recession in the wake of the war in Ukraine.
Despite inflation still topping 6%, Wunsch rejected talk of stagflation, which he said is “certainly not our base case.” He described a “relatively narrow path” to a soft landing from here, where price gains return to the 2% target and growth is strong.
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“The elephant in the room is whether we’re going to have to see some more slowdown in the economy and maybe a slight pickup in unemployment to get there,” he said. “Again it’s not in the base case so it’s possible without that but we might need a bit more slack in the economy to get there.”
Speaking separately on Tuesday, Wunsch’s Slovenian counterpart, Bostjan Vasle, said more action by the ECB may be needed “if inflation will turn out to be more persistent than we believe at the moment.”
“Let’s wait and see what will happen during the summer months and then have a new decision in September,” he told Bloomberg TV.
