Christine Lagarde: ECB press conference - introductory statement
Introductory statement by Ms Christine Lagarde, President of the European Central
Bank, and Mr Luis de Guindos, Vice-President of the European Central Bank, Frankfurt
am Main, 18 July 2024.
* * *
Good afternoon, the Vice-President and I welcome you to our press conference.
The Governing Council today decided to keep the three key ECB interest rates
unchanged. The incoming information broadly supports our previous assessment of the
medium-term inflation outlook. While some measures of underlying inflation ticked up in
May owing to one-off factors, most measures were either stable or edged down in June.
In line with expectations, the inflationary impact of high wage growth has been buffered
by profits. Monetary policy is keeping financing conditions restrictive. At the same time,
domestic price pressures are still high, services inflation is elevated and headline
inflation is likely to remain above our target well into next year.
We are determined to ensure that inflation returns to our two per cent medium-term
target in a timely manner. We will keep policy rates sufficiently restrictive for as long as
necessary to achieve this aim. We will continue to follow a data-dependent and
meetingby-meeting approach to determining the appropriate level and duration of restriction. In
particular, our interest rate decisions will be based on our assessment of the inflation
outlook in light of the incoming economic and financial data, the dynamics of underlying
inflation and the strength of monetary policy transmission. We are not pre-committing to
a particular rate path.
The decisions taken today are set out in a press release available on our website.
I will now outline in more detail how we see the economy and inflation developing and
will then explain our assessment of financial and monetary conditions.
Economic activity
The incoming information indicates that the euro area economy grew in the second
quarter, but likely at a slower pace than in the first quarter. Services continue to lead the
recovery, while industrial production and goods exports have been weak. Investment
indicators point to muted growth in 2024, amid heightened uncertainty. Looking ahead,
we expect the recovery to be supported by consumption, driven by the strengthening of
real incomes resulting from lower inflation and higher nominal wages. Moreover,
exports should pick up alongside a rise in global demand. Finally, monetary policy
should exert less of a drag on demand over time.
The labour market remains resilient. The unemployment rate was unchanged, at 6.4 per
cent in May, remaining at its lowest level since the start of the euro. Employment, which
grew by 0.3 per cent in the first quarter, was supported by a further increase in the
labour force, which expanded at the same rate. More jobs are likely to have been
created in the second quarter, mainly in the services sector. Firms are gradually
reducing their job postings, but from high levels.
National fiscal and structural policies should aim at making the economy more
productive and competitive, which would help to raise potential growth and reduce price
pressures in the medium term. An effective, speedy and full implementation of the Next
Generation EU programme, progress towards capital markets union and the completion
of banking union, and a strengthening of the Single Market are key factors that would
help foster innovation and increase investment in the green and digital transitions. We
welcome the European Commission's recent guidance calling for EU Member States to
strengthen fiscal sustainability and the Eurogroup's statement on the fiscal stance for
the euro area in 2025. Implementing the EU's revised economic governance framework
fully and without delay will help governments bring down budget deficits and debt ratios
on a sustained basis.
Inflation
Annual inflation eased to 2.5 per cent in June, from 2.6 per cent in May. Food prices
went up by 2.4 per cent in June - which is 0.2 percentage points less than in May -
while energy prices remained essentially flat. Both goods price inflation and services
price inflation were unchanged in June, at 0.7% and 4.1% respectively. While some
measures of underlying inflation ticked up in May owing to one-off factors, most
measures were either stable or edged down in June.
Domestic inflation remains high. Wages are still rising at an elevated rate, making up for
the past period of high inflation. Higher nominal wages, alongside weak productivity,
have added to unit labour cost growth, although it decelerated somewhat in the first
quarter of this year. Owing to the staggered nature of wage adjustments and the large
contribution of one-off payments, growth in labour costs will likely remain elevated over
the near term. At the same time, recent data on compensation per employee have been
in line with expectations and the latest survey indicators signal that wage growth will
moderate over the course of next year. Moreover, profits contracted in the first quarter,
helping to offset the inflationary effects of higher unit labour costs, and survey evidence
suggests that profits should continue to be dampened in the near term.
Inflation is expected to fluctuate around current levels for the rest of the year, partly
owing to energy-related base effects. It is then expected to decline towards our target
over the second half of next year, owing to weaker growth in labour costs, the effects of
our restrictive monetary policy and the fading impact of the past inflation surge.
Measures of longer-term inflation expectations have remained broadly stable, with most
standing at around 2 per cent.
Risk assessment
The risks to economic growth are tilted to the downside. A weaker world economy or an
escalation in trade tensions between major economies would weigh on euro area
growth. Russia's unjustified war against Ukraine and the tragic conflict in the Middle
East are major sources of geopolitical risk. This may result in firms and households
becoming less confident about the future and global trade being disrupted. Growth
could also be lower if the effects of monetary policy turn out stronger than expected.
Growth could be higher if inflation comes down more quickly than expected and rising
confidence and real incomes mean that spending increases by more than anticipated,
or if the world economy grows more strongly than expected.
Inflation could turn out higher than anticipated if wages or profits increase by more than
expected. Upside risks to inflation also stem from the heightened geopolitical tensions,
which could push energy prices and freight costs higher in the near term and disrupt
global trade. Moreover, extreme weather events, and the unfolding climate crisis more
broadly, could drive up food prices. By contrast, inflation may surprise on the downside
if monetary policy dampens demand more than expected, or if the economic
environment in the rest of the world worsens unexpectedly.
Financial and monetary conditions
The policy rate cut in June has been transmitted smoothly to money market interest
rates, while broader financial conditions have been somewhat volatile. Financing costs
remain restrictive as our previous policy rate increases continue to work their way
through the transmission chain. The average interest rate on new loans to firms edged
down to 5.1 per cent in May, while mortgage rates remained unchanged at 3.8 per cent.
Credit standards for loans remain tight. According to our latest bank lending survey,
standards for lending to firms tightened slightly in the second quarter, while standards
for mortgages eased moderately. Firms' demand for loans fell slightly, while
households' demand for mortgages rose for the first time since early 2022.
Overall, credit dynamics remain weak. Bank lending to firms and households grew at an
annual rate of 0.3 per cent in May, only marginally up from the previous month. The
annual growth in broad money - as measured by M3 - rose to 1.6 per cent in May, from
1.3 per cent in April.
Conclusion
The Governing Council today decided to keep the three key ECB interest rates
unchanged. We are determined to ensure that inflation returns to our two per cent
medium-term target in a timely manner. We will keep policy rates sufficiently restrictive
for as long as necessary to achieve this aim. We will continue to follow a
datadependent and meeting-by-meeting approach to determining the appropriate level and
duration of restriction. In particular, our interest rate decisions will be based on our
assessment of the inflation outlook in light of the incoming economic and financial data,
the dynamics of underlying inflation and the strength of monetary policy transmission.
We are not pre-committing to a particular rate path.
In any case, we stand ready to adjust all of our instruments within our mandate to
ensure that inflation returns to our medium-term target and to preserve the smooth
functioning of monetary policy transmission.
We are now ready to take your questions.