Inflation in the euro zone is moving in the right direction, Portugal's central bank governor Mario Centeno said on Tuesday, although his colleagues on the ECB's Governing Council have adopted a more hawkish tone in recent days.
“We are targeting medium-term inflation, we are not targeting February inflation, and the trajectory right now is very positive,” Centeno told CNBC at the World Economic Forum in Davos, Switzerland.
“I'm not saying overshooting is possible, but we don't need to do more than is necessary to get inflation to 2% in the medium term. Since the end of 2022, all of our forecasts through 2025 show a very good forecast. -anchored medium-term inflation forecast.
“We remain data-dependent, that's the way we make our decisions… One of the ECB's biggest successes of late is anchoring inflation expectations at 2% over the medium term, and that's because we have credibility to do that “We have to stay that way,” Centeno said.
Inflation pressures have spread domestically as most of the shocks that triggered the sharp rise in inflation to 10.6% in October 2022 have eased, he added.
Service sector inflation is falling faster than it has risen and is on a particularly positive trend, according to Centeno.
The comments come a day after Austrian central bank governor and ECB member Robert Holzmann said data in recent weeks had been pointing in the “opposite direction” than would normally spur interest rate cut talks. He also said that, contrary to market expectations, there may not be any cuts this year.
Holzmann also described new risks from volatility in the Middle East as potentially inflationary.
When asked about the possible timing of interest rate cuts, Centeno said: “We were surprised by the reduction in inflation numbers in the last three to four months.” This is positive, even if it shows small errors in the forecast, because it shows that a more restrictive monetary policy is taking effect, he said.
“And once inflation starts to fall sustainably, we have to be open, consider all the data and decide on it in an economy that is not growing, where the challenges are huge,” Centeno continued.
The euro zone economy has been stagnant for five quarters and looks “shaky,” in contrast to what was seen in the U.S. over the same period, and “we need to address it,” Centeno noted.
German central bank chief Joachim Nagel told Bloomberg on Monday that inflation is currently too high to justify discussing interest rate cuts, but said summer may be an appropriate time.