Wage tracker indicates easing labor costs Surveys indicate a rise in other costs Indicators of underlying inflation have changed little in recent months Short-term inflation expectations have moved up High energy costs make firms and households reluctant to invest Supply chains…
Wage tracker indicates easing labor costs Surveys indicate a rise in other costs Indicators of underlying inflation have changed little in recent months Short-term inflation expectations have moved up High energy costs make firms and households reluctant to invest Supply chains coming under pressure Economy was showing momentum before current turbulence The headlines from Lagarde’s press conference confirm what the statement hinted at — the ECB is sitting on its hands but the risk balance has shifted under its feet. Rates held at 2.15% on the main refi, 2.00% on the deposit, exactly as priced.
The euro initially sold off on the no-pre-commitment language, but Lagarde’s tone is doing some lifting on the other side. The “favourable starting point provides some cushioning” framing is important. Lagarde is telling markets that the euro area entered this shock with inflation near target and a resilient economy, so the ECB has runway before it has to react.
That’s a way of buying time without committing to anything. “Households in solid financial position” and “labour demand has cooled further” are running in opposite directions narratively — balance sheets are fine, but the labour market is loosening. The wage tracker pointing to easing labour costs is the disinflationary anchor she keeps coming back to, and it’s the single biggest reason the ECB can credibly stay on hold rather than getting forced into a hike. Fiscal guidance — “responses should be temporary, targeted, tailored” — is the standard ECB plea to governments not to muddy the disinflation path with broad energy subsidies.