Euro zone inflation could fall faster than earlier thought given a host of positive developments in recent months but past price hikes and a tight labour market could still exert upward pressure on underlying prices in the near term, European Central Bank policymaker Pablo Hernandez de Cos said on Wednesday.
“Recent data on euro area inflation and some of its key determinants are somewhat encouraging, but the overall situation still requires caution”, De Cos said in a speech posted on the webpage of the Bank of Spain.
Having raised rates by 3 percentage points since July, policymakers have started to ponder when and where the fastest tightening cycle in ECB history will end, especially since inflation is now retreating quickly from record highs.
De Cos said that the evidence so far was very preliminary and there were several areas that required careful monitoring, such as the residual pass-through of past inflationary shocks and the symmetry of the pass-through of recent energy price declines to core inflation, labour market and wage developments.
He also mentioned the possible effects of the Chinese reopening, the resilience of the euro area economy and the transmission of ECB monetary policy decisions.
“All these will have to be assessed as part of the full projections exercise under way in the run-up to our March meeting,” De Cos said.
