ECB's Lagarde More Confident Of Meeting Inflation Target — Update

By Paul Hannon

The European Central Bank is more confident that inflation is going to settle at its target after a series of recent data releases, and will take that into account when it next sets policy, President Christine Lagarde said Monday.

Figures released Friday and earlier Monday by the eurozone's largest economies all point to a big decline in the inflation rate during September. Economists expect figures for the eurozone as a whole that will be released Tuesday to record the first drop below the ECB's 2% target since mid-2021.

"The latest developments strengthen our confidence that inflation will return to target in a timely manner," Lagarde said in a statement to the European Parliament.

Those inflation releases, and surveys indicating that the economy is faltering, have increased expectations among traders and investors that the ECB will lower its key rate when it meets on Oct. 17, having cut for a second time earlier this month.

In comments that are likely to fuel those expectations, Lagarde told European lawmakers that the ECB will take its increased confidence "into account in our next monetary policy meeting in October."

Germany's statistics agency Monday said consumer prices were 1.8% higher than a year earlier in September, down from an inflation rate of 2% in August, as measured by the shared eurozone methodology. In Italy, prices were just 0.8% higher than a year earlier, down from an inflation rate of 1.2% in August.

While the decline in inflation was largely driven by energy costs, cooling services prices also helped. Policymakers worry that sharp rises in wages will pressure businesses providing labor-intensive services to raise their prices again.

"The fight against inflation is progressing," Lagarde told lawmakers, adding that wages are "beginning to decelerate."

While inflation appears to be cooling faster than policymakers had expected, the economy is looking weaker than forecast. Recent business surveys pointed to a decline in output in September following a slowdown in the second quarter, while measures of confidence remain subdued.

"The suppressed level of some survey indicators suggests that the recovery is facing headwinds," Lagarde said.

When it announced its latest rate cut, the ECB said it would likely take a cautious approach to future rate cuts, and investors took that as a signal that a move in December was more likely than another cut in October.

However, weaker-than-expected data has come on top of more aggressive moves elsewhere, most notably the Federal Reserve's decision to cut by half a percentage point, instead of the more modest quarter-point steps favored by the ECB.

Sweden's central bank has said it will consider a move of that size before the end of this year, while Switzerland last week cut its key rate for a third straight policy meeting.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

September 30, 2024 10:29 ET (14:29 GMT)

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