Christine Lagarde, President of ECB, acknowledged the persistence of robust price pressures in her recent speech. She pointed out that both headline and core inflation continue to face “upside pressures… from the pass-through of past energy cost increases and supply bottlenecks.”

Speaking on the current state of underlying inflation, Lagarde said, “The latest available data suggest that indicators of underlying inflationary pressures remain high and, although some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked.”

Lagarde also highlighted the intensifying wage pressures, noting that “wage pressures have strengthened further as employees recoup some of the purchasing power they have lost as a result of high inflation.”

Lagarde also drew attention to the forceful impact of the central bank’s rate hikes on financial conditions. “Our rate hikes are being transmitted forcefully to financing conditions for firms and households, as can be seen in rising lending rates and falling lending volumes,” she stated.

Notably, she mentioned that “the full effects of our monetary policy measures are starting to materialise,” adding that future ECB decisions are geared towards ensuring a “timely return of inflation to our 2% medium-term target.” She asserted, “Our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive… and will be kept at those levels for as long as necessary.”

Full speech of ECB Lagarde here.

In an interview with Le Monde, ECB Executive Board Fabio Panetta noted, “Given the extraordinary level of economic uncertainty, estimating the terminal rate is challenging.”

“I don’t think this is the time to be too hasty in raising rates, given the considerable ground we have already covered.” He added “my intuition suggests that we have not reached the end of our rate-hike cycle, though we’re not far away from it.”

As for the future of ECB’s monetary policy, Panetta indicated a shift in focus. “I think the policy debate will soon shift away from ‘how high?’ to ‘how long?’,” he stated.

He identified the strength of the labour market and firms’ profit strategies as the main threats to price stability but pointed out, “so far there are no clear indications of a self-sustained wage-price spiral.”

In addressing core inflation’s lagging pattern behind headline inflation, Panetta observed, “it (core inflation) is now proving to be persistent even after energy inflation has gone down. But we can expect it to come down eventually too. In this respect, yesterday’s figures are encouraging.”

He concluded by warning that the effects of ECB’s monetary tightening could potentially lead to “a prolonged weakness in economic activity or even a technical recession” if domestic demand continues to falter.

Full interview with Panetta here.