Inflation battle will take time, top ECB official says

FRANKFURT, Germany  -Efforts to bring down inflation will take time, a senior European Central Bank official said Wednesday, warning that the eurozone had yet to fully feel the impact of higher interest rates.

“While inflation continues to decline, it is still expected to remain too high for too long,” ECB vice-president Luis de Guindos said at a conference in Cyprus.

The ECB last month raised interest rates for a 10th consecutive time in a bid to cool consumer prices, taking its benchmark deposit rate to a record high of four percent.

Eurozone inflation eased to 4.3 percent in September, its lowest level in almost two years, fueling hopes that ECB’s aggressive hiking cycle has come to an end.

READ: Europe inflation held steady in August as ECB keeps an open mind on rates

De Guindos reiterated that the bank’s next moves would be “data-dependent” and said the impact of the ECB’s monetary policy tightening was still trickling down to the real economy.

“A substantial share of the transmission from financing conditions to the real economy is expected to still be in the pipeline,” he said.

Real estate activity has slowed for example as credit becomes more expensive, he said. But for the economy as a whole, “the bulk of the impact of our tightening is expected to materialize only in the course of this year and thereafter.”

READ: ECB raises rates to record high, signals end to hikes

According to the ECB, its key interest rates have now reached levels that, “maintained for a sufficiently long duration”, will make “a substantial contribution” to returning inflation to the bank’s two percent target.

The ECB expects inflation to come in at 5.6 percent this year before slowing to 3.2 percent in 2024 and 2.1 percent in 2025, partly thanks to lower energy prices.