ECB economist says inflation is 'close to peak'

The European Central Bank chief Economist Philip Lane said consumer price growth is probably near its zenith, while acknowledging that borrowing costs will be raised again.

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In an interview published Tuesday, Lane told Milano Finanza that it was probably too early to make a judgement on whether inflation is cresting or not, but I would be reasonably confident in saying that we are close to peak inflation. It's not clear whether this will be the peak or whether it will arrive at the beginning of 2023. A week and a half before the European Central Bank sets interest rates, indications from officials are that they may slow their recent pace of hikes. Ireland s Gabriel Makhlouf said Monday that a half-point move is the most likely outcome after back-to-back increases of 75 basis points. The euro-zone's inflation has gone down for the first time in 2 years and there is talk of moderation.

Lane said that more rate increases will be necessary, but a lot has already been done, according to a transcript on the ECB website. He said that we had already hiked rates by 200 basis points. We should take into account the scale of what we have already done. We expect the ECB to hike through winter, taking the deposit rate to 2.75% in March. The Governing Council is expected to reduce rates by the end of 2023 due to falling headline and core inflation. The chief economist of the European Central Bank said that he couldn't rule out extra inflation early next year. We should see a drop in the inflation rate when we are past the initial months of 2023, later on in 2023. The journey of inflation from the current very high levels back to 2% will take time. He said that the initial downshift from the current high rates will be to around that level with a further reduction to follow, and that the inflation rate might drop to 6% -- 7% in 2023.

The second round of inflation will be coming, according to Lane, who cited larger-than-normal pay increases over the next three years. It will take some time to return to our 2% target. The second round effects will drive inflation next year and in 2024.