© Reuters. Spanish Economy Minister Luis de Guindos delivers a presentation at an event in Madrid October 15, 2012. Spain’s economic activity in the third quarter was similar to that seen in the second and overall looked better than the performance in the rest of Eu
FRANKFURT (Reuters) – Euro zone inflation appears to be heading back to 2% but the European Central Bank needs “some time” and more data before it can be comfortable that record-high interest rates have done their job, ECB vice-president Luis de Guindos said on Wednesday.
Interest rates have been at a record high since September and policymakers have been pushing back on rate cut talk, insisting that even if the next move is policy easing, it is further into the future than investors think.
Investors are now expecting 113 basis points of cuts this year, down from 150 basis points earlier, with the first move now seen either in April or June.
“While we are heading in the right direction, we must not get ahead of ourselves,” de Guindos told a conference in Split, Croatia. “It will take some more time before we have the necessary information to confirm that inflation is sustainably returning to our 2% target.”
De Guindos argued that wage pressures remain high and the ECB did not yet have sufficient data to suggest that they are easing, a potential upside risk for prices.
Profit margins could also prove more resilient than anticipated while tensions in the Middle East risked pushing up energy costs and disrupting global trade.
Still, de Guindos argued that disinflation was continuing, possibly helped by slugging growth, which was unlikely to improve in the near term.
The ECB’s past rate hikes are also still working their way through the economy and they will continue to dampen demand for some time.
But projections have been prone to errors and uncertainty remained large, so the ECB needed to look at forecasts alongside incoming data over the coming months, de Guindos added.
