ECB President Christine Lagarde said in a Nikkei interview, “we are determined to tame inflation, to bring it back to our 2% medium-term target in a timely manner.” She acknowledged that “we have made a sizable adjustment already. But we still have more ground to cover”.

Highlighting the importance of data, Lagarde said, “Our reaction function will be anchored in the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, and this will dictate our decisions going forward.”

She emphasized ECB’s focus on headline inflation as the critical measure to ensure price stability. “That’s our thermometer, that’s what we are committed to doing,” she stated.

However, Lagarde also pointed to the relevance of additional inflation measures. “Core” inflation is one such measure, but others exist, such as those that exclude more volatile items or focus more on domestic inflation pressures.

She explained, “It’s to arrive at the ‘heart’ of inflation, the most persistent element in those price indexes that can help us understand where headline inflation is likely to settle in the medium term.”

Lagarde cautioned that significant upside risks to inflation outlook still exist, and the path of inflation remains uncertain. Therefore, she stressed the need for the ECB to be “extremely attentive to those potential risks.”

Full interview transcript of ECB Lagarde here.

In an interview with Greece’s Imerisia, ECB Governing Council member Yannis Stournaras indicated that while the end of the tightening cycle was in sight, it was not yet complete.

“We’re close to the end,” Stournaras remarked. But, “we’re not there yet, so I agree with Madame Lagarde that we still have some distance to go.”

Stournaras acknowledged the inherent uncertainty in projecting the number of additional rate hikes, with such decisions being heavily influenced by inflation forecasts, economic growth and the state of financial conditions.

“We can’t yet say how many more rate hikes will happen,” he said, tempering expectations for a concrete timeline. “As things stand today and if nothing dramatically changes, we can say that in 2023 rate hikes will end.”

He also emphasized the persistence of current or potentially higher rates, a measure deemed necessary until inflation approaches the 2% target. “Rates will remain where they are today or higher for some time until inflation comes very close to the 2% target,” he clarified.

In an interview with Deutschlandfunk radio, Bundesbank President Joachim Nagel painted a cautiously optimistic picture of ECB’s monetary policy landscape, implying that restrictive measures were beginning to bear fruit.

“We’re coming to the home stretch in the sense that we are reaching the area in monetary policy that’s considered restrictive,” Nagel noted, suggesting that ECB’s tightened policy stance was close to hitting its intended mark. He asserted his confidence that the monetary policy was indeed manifesting its effect.

However, he was quick to emphasize that ECB’s task was far from complete. “But we are not done hiking yet,” he added, “There is still work to be done on core inflation.”

Nagel emphasized the importance of staying the course with the current monetary policy, urging persistence. “We need to stay stubborn,” he said, reinforcing his commitment to seeing the central bank’s measures through.

Addressing concerns about the potential impact of the ongoing banking sector upheaval in the US on German banks, Nagel sought to allay fears. “German banks are in a fundamentally solid position,” he assured, indicating that he did not share the prevailing apprehensions over the stability of German banks.

ECB Executive Board member Isabel Schnabel reaffirmed the bank’s commitment to stringent measures to restore inflation to 2% target during an event in Frankfurt yesterday. Citing current data, she stated, “there is no doubt that we have to do more to bring inflation back to our 2% target in a timely manner.”

Schnabel emphasized ECB’s readiness to “raise rates decisively until it becomes clear that core inflation is also declining on a sustained basis.” This stance aligns with recent remarks by ECB President Christine Lagarde, who Schnabel notes, “has made it absolutely clear that the slowdown in rate hikes is not an indication that we’ll stop raising rates any time soon.”

Contrary to market expectations for potential rate cuts this year, Schnabel argued such predictions were “highly unlikely for the foreseeable future,” pointing to the likelihood of prolonged high rates.

She observed that inflation momentum in Eurozone remained high for all items except energy, and price pressures were spreading across most consumption basket components. Despite the fading supply-side shocks from bottlenecks and energy prices, Schnabel highlighted the strength of the labor market, the uptick in wage growth, and high corporate profit margins. These factors underline the complex economic the ECB must navigate to achieve its inflation target.

ECB might need to keep raising interest rates for longer than initially anticipated, according to Governing Council member Peter Kazimir. His comments indicate an evolving stance within ECB as it grapples with stubbornly high inflation in the Eurozone.

“Based on today’s data, we will have to keep raising interest rates for longer than anticipated,” Kazimir stated. He suggested a slower pace of rate hikes, at 25 basis points increments, as a measured approach that allows for longer-term adjustments, should incoming data warrant it. “So, slowing down the pace to 25 bps is a step that will allow us to go gradually higher for longer, should that be necessary and warranted by incoming data,” he explained.

Kazimir pointed to core inflation trends, rising wage pressures, and high-profit margins as factors necessitating vigilance and the continued pursuit of the ECB’s current monetary policy trajectory. “The development of core inflation, the continued buildup of wage pressures, and high-profit margins call for vigilance and reconfirm the need to continue on our path,” he said.

However, the true effectiveness of the ECB’s measures and the trajectory of inflation towards the target will not be fully assessed until the September forecast. “Our September forecast will be the earliest date to answer how effective our measures are and whether inflation is moving towards the target,” Kazimir added.

In face of high inflation, ECB Governing Council member Martins Kazaks has voiced his belief that further interest rate hikes will be necessary to contain it. His remarks counter market expectations for borrowing costs to be cut as early as next spring, a notion Kazaks has described as “significantly premature.”

He outlined a dual strategy to bring the current inflation rate of 7% back to ECB’s target of 2%. “The first is raising the rates and of course we don’t know where the terminal rate is,” he commented. “Another thing is keeping those rates at elevated and sufficiently restrictive levels.”

Despite concerns about potential economic risks from higher interest rates, Kazaks emphasized that the risk of doing too little to counter inflation was far greater than the risk of over-tightening. “Persistently high inflation is a bigger problem for society than a relatively short and shallow recession,” he warned.

Underlining the importance of effective policy response, Kazaks cautioned, “Failing to contain inflation would be a failure because then the policy response in the second go would then need to be much tighter.”

ECB Chief Economist Philip Lane acknowledged the ongoing momentum in inflation but predicted a shift toward disinflation later this year.

Speaking at a panel in Berlin, Lane said, “There’s still a lot of momentum in inflation, but later this year and ongoing a lot of this inflation is supposed to reverse, partly because of the reversal of the underlying shocks, partly because of monetary policy.”

Despite this outlook, Lane noted that there is still momentum in food and core inflation, which runs counter to the decline in energy inflation.

Discussing businesses’ expectations, Lane mentioned, “This year (businesses) expect margins to fall quite a bit, because they may face cost increases, including labour costs increases, but they won’t be able to increase prices by so much because demand is normalising.”

He also emphasized the importance of rebuilding real wages in the labor market, stating, “There’s a very basic imperative for the labour market to rebuild real wages.” Lane explained that this transition phase, which will last several years, helps clarify why inflation is not immediately dropping back to 2%.