FRANKFURT, Germany – Bringing down inflation is a time-consuming process, according to a senior official from the European Central Bank (ECB). ECB vice-president Luis de Guindos stated at a conference in Cyprus that despite inflation decreasing, it is still expected to remain high for an extended period.
In an attempt to control consumer prices, the ECB raised interest rates for the tenth consecutive time last month, setting its benchmark deposit rate at a record four percent. The decline in Eurozone inflation to 4.3 percent in September, the lowest level in nearly two years, raised hopes that the aggressive hiking cycle of the ECB has come to an end.
De Guindos emphasized that the next steps by the bank would depend on data, stating that the impact of the ECB’s tightening of monetary policy was still filtering through to the real economy. He said, “A significant portion of the transmission from financing conditions to the real economy is expected to still be in progress.” According to him, real estate activity has slowed due to the increased cost of credit. However, he added, “The majority of the effects of our tightening are expected to occur later this year and beyond.”
The ECB has stated that its key interest rates have now reached levels that, if maintained for a long enough duration, will substantially contribute to bringing inflation back to the bank’s target of two percent. The ECB predicts inflation to reach 5.6 percent this year before gradually decreasing to 3.2 percent in 2024 and 2.1 percent in 2025, aided by lower energy prices.
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