ECB’s Cipollone Says Risks to Inflation Are ‘Very Balanced’
In a significant signal from the heart of Europe’s monetary policy, European Central Bank (ECB) Executive Board member Piero Cipollone has indicated that he perceives the risks to inflation as "very balanced," suggesting that current interest rates are "well positioned." This assessment offers a crucial glimpse into the thinking at the ECB and could temper market expectations for further aggressive policy shifts, at least in the immediate future.
Cipollone’s comments, coming from a relatively new but influential voice on the ECB's six-member Executive Board, resonate through the financial districts of the Eurozone. His view implies a growing confidence within the institution that the unprecedented series of rate hikes initiated to combat soaring inflation has largely achieved its intended effect, bringing price pressures closer to the ECB's 2% target. It's a sentiment many market participants have been waiting for, offering a potential waypoint after a period of intense — and often unpredictable — monetary tightening.
The journey to this point hasn't been without its challenges. The ECB aggressively raised its key interest rates by a cumulative 450 basis points since July 2022, a historic tightening cycle designed to rein in inflation that had spiraled into double digits following energy shocks and supply chain disruptions. Now, as headline inflation has cooled considerably, the focus has shifted to the more stubborn core inflation, which excludes volatile food and energy prices, and the persistence of services inflation. Cipollone’s balanced outlook suggests he sees both upward and downward pressures largely offsetting each other.
On the one hand, potential upside risks to inflation could stem from a renewed surge in energy prices due to geopolitical events, or a stronger-than-expected recovery in global demand. Moreover, persistent wage growth, particularly in the services sector, could feed into a wage-price spiral, making the "last mile" of disinflation particularly challenging. The Eurozone labor market has remained surprisingly resilient, which, while good for employment, can complicate the ECB's fight against inflation.
Conversely, significant downside risks also loom. A deeper-than-anticipated economic slowdown across the Eurozone, perhaps even a mild recession, could rapidly dampen demand and put downward pressure on prices. Global trade tensions, a severe downturn in key export markets, or an unexpected financial shock could also quickly shift the balance toward disinflationary forces. The ECB’s mandate is price stability, but they must also consider the health of the broader economy.
Cipollone’s characterization of rates as "well positioned" strongly hints at a period of holding steady. It reinforces the ECB’s stated data-dependent approach, where future policy decisions will hinge on incoming economic data – particularly inflation trends, wage developments, and economic growth figures. This doesn't mean the ECB is off the hook; rather, it suggests a more cautious, wait-and-see stance, allowing the full impact of past rate hikes to filter through the economy.
For businesses and investors, this balanced assessment from a key policymaker provides a degree of clarity. It suggests less volatility in interest rate expectations, which can help in planning and investment decisions. However, the inherent uncertainty of the global economic landscape means that while risks may currently appear balanced, that equilibrium is always subject to change. The ECB’s Governing Council will undoubtedly continue to monitor developments closely, ready to adjust course should the scale tip significantly in either direction.
