The European Central Bank is increasingly confident that inflation will fall back to its 2% target by mid-2025 as wage growth moderates, strengthening the case for lower interest rates, ECB board member Piero Cipollone said today.
The ECB has flagged a possible rate cut for June depending on further good news on wages and the comments from Cipollone, in his first major policy address since joining the board, suggest the process was heading in the right direction.
"As our confidence in the timely convergence of inflation to our target grows, it also strengthens the case for adjusting our policy rates," Cipollone said. The bank has placed an oversized emphasis on first quarter wage data, due out in late May, suggesting that the rate path is unlikely to be clear for some time yet.
Still, Cipollone cautioned against excessive focus on short-term wage developments, arguing that a recovery in household earnings was necessary and even after such a catch up, real wages would still be below levels justified by labour productivity growth since the pandemic.
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