Euro zone inflation is moving in the right direction, Portugal’s central bank governor Mario Centeno said Tuesday, despite his peers on the European Central Bank Governing Council striking a more hawkish tone in recent days.
“We target medium term inflation, we don’t target February inflation, and the trajectory is very positive right now,” Centeno told CNBC at the World Economic Forum in Davos, Switzerland.
“I don’t say that overshooting is a possibility, but we don’t need to do more than is needed to bring inflation in the medium term to 2%. Since the end of 2022, all our forecasts to 2025 show a very well-anchored forecast for inflation in the medium term.”
“We remain data dependent, that’s how we frame our decisions … One of the greatest successes of the ECB lately is being able to anchor expectations for inflation in the medium term at 2%, and this is because we are credible, we have to remain so,” Centeno said.
The pressures on inflation have become domestic, with most of the shocks that sparked the sharp rise in inflation to 10.6% in October 2022 having subsided, he added.
Services inflation is falling faster than it went up and is on a particularly positive course, according to Centeno.
The comments come a day after Austrian central bank governor and ECB member Robert Holzmann said that data in recent weeks had pointed in the “opposite direction” than would usually spur talk of cutting interest rates. He also said it was possible there would be no cuts this year, contrary to market expectations.
Holzmann also flagged new risks from volatility in the Middle East as potentially inflationary.
Asked about the potential timing of rate cuts, Centeno said: “We’ve been surprised in the last three to four months in the downsize with inflation numbers.” This is positive even if it shows small mistakes in forecasting because it shows tighter monetary policy taking effect, he said.
“And once inflation starts going down sustainably, with an economy … that is not growing, where the challenges are huge, we need to be open to get all data on board and decide upon that,” Centeno continued.
The euro zone economy has stagnated for five quarters and is looking “shaky,” contrary to what has been seen in the U.S. over the same period, and “we need to take care of it,” Centeno noted.
German central bank chief Joachim Nagel told Bloomberg on Monday that inflation was currently too high to warrant discussion of interest rate cuts, but said summer may be an appropriate time.