Inflation may be close to reaching its peak, says ECB chief economist

European Central Bank (ECB) chief economist Philip Lane said inflation is now probably near its peak while acknowledging that interest rates will still need to be raised again as prices across the OECD bloc of industrialised countries surged to another three-decade high of 10.7 per cent in October, with food prices accelerating in most countries.

The Paris-based organisation said double-digit inflation was recorded in 18 of 38 OECD countries, with the rates above 20 per cent in Estonia, Hungary, Latvia, Lithuania and Turkey.

Food price inflation across the OECD rose to 16.1 per cent, its highest level since May 1974, with rises recorded in 33 of 38 OECD countries, it said.

In an interview with Milano Finanza newspaper published on Tuesday, Mr Lane said it was probably too early to make a judgment on whether inflation is cresting, “but I would be reasonably confident in saying that it is likely we are close to peak inflation”.

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“Whether this already is the peak or whether it will arrive at the start of 2023 is still uncertain,” he said. “We do expect that more rate increases will be necessary, but a lot has been done already.

“The starting point is different now. We’ve already hiked rates by 200 basis points,” he said. Euro zone inflation fell back to 10 per cent, from 10.6 per cent, in November, according to flash estimates.

Asked whether the inflation rate might drop to between 6 and 7 per cent in 2023, Mr Lane said that “the initial downshift from the current high rates will be to around that level, with a further reduction to follow”.

Still, “we do think there will be a second round of inflation”, Mr Lane said, citing “bigger-than-usual pay increases over the next three years”.

Markets are pricing in another 1 per cent of rate rises between now and March, and the Irish Central Bank governor, Gabriel Makhlouf, said this week that he expected the ECB’s governing council to raise rates by a minimum of 0.5 of a percentage point when it meets on December 15th.

Frankfurt has lifted interest rates three times so far this year to combat inflation, including two three-quarter-point hikes in September and November.

The OECD said energy inflation fell as a whole across the bloc (to 28.1 per cent, from 28.8 per cent). Nevertheless, it remained above 10 per cent in 35 OECD countries, and above 30 per cent in 13 of them.

[ ECB’s Lane confident inflation near peak as more hikes to come ]

Excluding food and energy, year-on-year inflation in the OECD was stable, at 7.6 per cent in October. ECB policymakers closely monitor underlying inflation as it indicates whether price growth and price expectations are becoming more entrenched in the economy.

– Additional reporting: Bloomberg

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