Inflation battle will take time, top ECB official says

FRANKFURT, Germany—Efforts to reduce inflation will take time, a senior European Central Bank official said Wednesday, warning that the euro zone had yet to fully feel the impact of higher interest rates.

“Although inflation continues to fall, it is expected to remain too high for too long,” ECB Vice President Luis de Guindos said at a conference in Cyprus.

The ECB raised interest rates for the tenth time in a row last month in an attempt to cool consumer prices, pushing the key deposit rate to a record high of four percent.

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

READ: Inflation in Europe remained stable in August as the ECB remains open on interest rates

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

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

For example, real estate activity has slowed 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 over the course of this year and beyond.”

READ: ECB raises interest rates to record high, signals end with interest rate increases

According to the ECB, key interest rates have now reached a level that, “if maintained for a sufficiently long period”, will make “a substantial contribution” to bringing inflation back to the bank’s two percent target.

The ECB expects inflation to reach 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.