(Finance) – “The most recent data do not dispel my concerns that the last mile (of the fight against inflation, ed.) it might be the hardest one. We see persistent services inflation. We see a resilient job market. At the same time, we see a notable easing of financial conditions because markets are aggressively pricing central banks to pivot.” Isabel Schnabelwho is part of the Executive Board of the ECB, in an interview with the Financial Times.
“In addition to this, recent events in the Red Sea have raised fears of new supply chain disruptions,” he added. “Overall, this warns of an imminent adjustment in the political position. This means that we must be patient and cautious because we know, also from historical experience, that inflation can flare up again.”
Regarding delays in the transmission of monetary policy to the economy, the German economist said: “My opinion is that we have probably passed the peak of transmission. This also ties into the issue of the last mile of disinflation. Initially, we achieved rapid successes of disinflation, i.e. the reversal of supply-side shocks. We’ve seen this quite impressively with inflation falling from a peak of 10.6% in October 2022 to 2.9% just a year later. Since then, inflation has remained broadly stable. I would say we are entering a critical phase where Calibration and transmission of monetary policy become particularly important because it’s about containing second impact effects.”
Schnabel reiterated that “the last mile remains a concern“. “We observe a slowdown in the disinflationary process typical of the last mile – he explained – This is closely connected to the dynamics of wages, productivity and profits. We have seen a sharp decline in real wages, followed by strong growth in nominal wages as employees try to make up for lost income. The service sector is particularly hard hit because wages play a dominant role in its cost structure.”