Yahoo Finance Schnabel Says Potential Shocks Mean ECB Can’t Precommit on Rates
(Bloomberg) -- The risk of new inflation jolts means that the European Central Bank has to stay flexible on interest rates, according to Executive Board member Isabel Schnabel.
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“We could be threatened by new price shocks,” Schnabel said at an awards ceremony in Kiel, Germany, on Sunday. “That’s why we are on alert and haven’t precommitted to a fixed rate path, but are staying data dependent.”
The ECB lowered borrowing costs earlier this month, and while officials signaled that it won’t be the only cut, they haven’t offered much guidance on how quickly rates might drop. Most have highlighted lingering inflation risks and argued for a cautious approach.
The disinflation process is likely to be “somewhat bumpy,” she said, adding that “we describe this as the difficult last mile.”
Schnabel said that while goods inflation is slowing quickly, price pressures from services are proving more sticky.
The ECB doesn’t see consumer-price growth reaching the 2% target until the final quarter of 2025, according to projections published earlier this month. Inflation accelerated to 2.6% in May, though a Nowcast by Bloomberg Economics currently suggests a reading of 2.2% for June.
“Recent developments point in the right direction,” Schnabel said. Still, geopolitical risks and the fallout from climate change — including recent landslides in Switzerland — are among potential supply-side shocks, she added.
Meanwhile, labor hoarding has been weighing on labor productivity and is weakening monetary policy transmission, Schnabel said.
“Now that inflation is going back, we’re seeing that wage growth is also gradually easing, and there are no indications of a wage-price spiral like we saw in the 1970s,” she said. “That’s because we’ve manage to anchor inflation expectations of companies and households at our inflation goal.”
She also said that “firms are starting to absorb higher wage costs in their profit margins.”
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