ECB Chief Economist Suggests Price Spiral Will Ease By Year End

Irishman Philip Lane, chief economist of the European Central Bank (ECB), said he was confident that inflation would “start to come down” towards the end of this year.

Inflation in the Irish economy is expected to rise to 8.5% or even higher in the coming months, a level not seen since the early 1980s, as war in Ukraine compounds existing price pressures in the country. ‘Mondial economy.

Earlier this week, the Economic and Social Research Institute (ESRI) warned that squeezing the cost of living would lower incomes – in real terms – by an average of 2% this year, leading to lower income of a typical household of around €1,300.

However, the ECB economist and former governor of the Central Bank of Ireland expressed confidence that inflation will “start to come down” towards the end of this year.

“We think the inflation rate will start to come down in the second half of the year,” he told RTÉ Radio One’s The Business on Saturday morning.

“We tend to focus on the overall inflation rate for the year. We have it at 5.1%. 100 for the year. It’s above that number now and it will be above that number in the next few months, but we think it will start to come down.”

Mr Lane said he expected the eurozone inflation rate to be “just above 2% next year and to fall back to 1.9% in 2024”.

He warned of a dramatic fall in prices and pointed out that when he spoke of inflation of around 2% next year, he was not saying that “prices will come down, but that means that this momentum will stabilize”.

He noted that the price of oil in the energy markets in mid-November, the price of oil was $80 per barrel, but it is now at $120 per barrel.

“With this 50% increase in the price of oil in recent months, we believe that by the summer inflation will continue to rise,” he said.

“The exact design of how you implement the measures will vary from country to country. From a macro perspective, if someone with a high income has to pay more for their energy, they can simply lower their savings rate.

“People on low incomes have no savings to fall back on. They will reduce their consumption, which hurts the economy. From an economic perspective, targeted and temporary are our key messages,” he said.

He acknowledged that the price hikes are having a negative impact on many people, but suggested that this would lessen over the next year. “We think inflation will still be much higher than it was before the pandemic, but an inflation rate of around 2% is very different from an inflation rate of around 4 or 5 %.

He cautioned against any comparison with the 1970s, when spiraling inflation brought the Irish economy to its knees. “For companies and workers who are trying to reach reasonable wage agreements, there has been this surprise inflation, people have seen their standard of living go down and that has to be a factor in wage negotiations. But there’s a difference between that and saying we think we’re in a new era of high inflation like the 1970s.”

Abdul J. Gaspar