Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Nicholas Owen

1 March 2023

The interview is an updated version of the conversation broadcast in the IMF podcast series on 17 November 2022.

After rising to highs not seen for 40 years, inflation in Europe is showing signs of slowing. How important is it to the euro area’s economic outlook that the authorities succeed in returning inflation expectations to 2 percent?

The worst-case scenario for a central bank is that a prolonged phase of high inflation causes the public to lose confidence that price stability (in practice, a 2 percent inflation target) will be maintained over the medium term. If the public comes to believe that inflation will remain high on an indefinite basis, this would be baked into price and wage setting and become self-sustaining. So it is essential that monetary policy is clearly set to make sure that inflation returns in a timely manner to our 2 percent target. This has been especially important over the last year, given that monetary policy had been previously geared for several years to address a persistent below-target inflation pattern. So we have been moving in a sustained manner away from a super-accommodative monetary stance toward a stance that is sufficiently restrictive to make sure inflation returns to target and thereby keeps longer-term inflation expectations anchored.

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