- Latest underlying inflation measures hovering around 1.9% to 2.8%, down significantly from peak range of 3.4% to 7.5%
- Core inflation (ex food & energy) down to 2.7% in Sept vs 4.5% a year ago
- Persistent and Common Component of Inflation measure at bottom of range at 1.9% in Sept - has been around 2% since end of 2023
- idiosyncratic and non-persistent factors are currently driving services inflation
- Adjusted measures of underlying inflation (stripping out energy/supply chain effects) showing range of 2-2.5%
- Services inflation still elevated but expected to decline - PCCI for services at 2.4%
- Wage growth pressure still high at 4.5% in Q2 2024 but down from 5.6% peak in Q2 2023
- KEY: New wage agreements in 2024 showing "substantially lower" structural wage growth vs deals signed in 2022-23
- Surveys suggest wage growth will ease in 2025 as "catch-up" dynamic fades
- Lane: 2024 is a "transition year" with backward-looking components still playing out
- Bottom line: Lane sees disinflation "well on track" with inflation set to return to target in 2025
- Notable: Forward-looking indicators support further easing in wage pressures into 2025
- Services momentum showing continuous easing since May 2024, with sharp drop in Sept
Here is a chart highlighting the momentum of services inflation.
"Each of the underlying inflation indicators tracked by the ECB has declined significantly since the post-pandemic inflation surges, with the range narrowing towards its historical average. The majority of indicators are hovering around 1.9 per cent to 2.8 per cent, down from a much wider range between 3.4 per cent to 7.5 per cent at its peak," Lane said.
Other officials have laid out comments saying they expect inflation come fall to target well-below the end of 2025 (as previously assumed) but Lane doesn't get into timelines. However the entire presentation highlights declining inflation, which is obviously dovish.
At the same time, the ECB doesn't seem to get that they should be cutting rates more quickly.