ECB needs more data but inflation going in right direction: Lagarde By Reuters

FRANKFURT (Reuters) – Euro zone economic data indicates that inflation is heading back towards target as earlier predicted but the European Central Bank still needs more information before it can be sure, ECB President Christine Lagarde said on Thursday.

The ECB has kept interest rates unchanged at a record high since September and has been pushing back on rampant rate cut talk among investors, arguing that crucial data, particularly about wages, was still missing.

“The latest data confirms the ongoing disinflation process and is expected to bring us gradually further down over 2024,” Lagarde told a European Parliament hearing in Brussels.

“The current disinflationary process is expected to continue, but the Governing Council needs to be confident that it will lead us sustainably to our 2% target,” Lagarde added, repeating the ECB’s now standard message.

Markets now see 113 basis points of rate cuts this year, down from 150 basis points just weeks ago, accepting the ECB’s concerted pushback against excessive policy easing bets.

Part of the ECB’s pushback centres on relatively quick nominal wage growth, as workers are looking to recoup incomes lost to inflation.

“Wage growth continues to be strong and is expected to become an increasingly important driver of inflation dynamics in the coming quarters, reflecting tight labour markets and workers’ demands for inflation compensation,” Lagarde said.

The ECB’s own forward-looking wage tracker continued to signal strong wage pressures but figures do signal some levelling off at the end of last year, Lagarde argued.

Still, the ECB needed to see the outcome of wage deals to be struck in the first quarter of this year before it can be certain that income growth does not put undue upward pressure on prices.

Giving disinflation a boost, economic growth is now hovering around zero for the sixth straight quarter and Lagarde said activity would remain “subdued” in the near term.