European Central Bank Chief Economist Philip Lane said the institution will pay close attention to two corporate indicators - firms' expectations for selling prices and wages for recent hires - as it assesses inflation risks linked to the war-related rise in energy costs.
Speaking at a conference in Frankfurt, Lane described how financial markets have priced in what he characterised as a price-level jump for the euro zone stemming from higher energy prices, rather than anticipating a sustained increase in inflation that would exceed the ECB's 2% objective.
Lane said the ECB will evaluate the prevailing economic scenario at every meeting. He highlighted a marked deterioration in consumer confidence and pointed out that purchasing managers' indices show a downturn, signals the bank will weigh in its policy deliberations.
On inflation expectations, Lane noted a pronounced impact in the first year and then a smaller effect thereafter. He said markets are forecasting particularly large readings in March and April before expectations return to more typical levels.
Lane stressed that a clear understanding of selling-price expectations among companies will be central to the ECB's assessment of price dynamics going forward. He also described the ECB's wage tracker as a useful leading indicator for negotiated wages, citing it as important for judging whether pay pressures might sustain inflation.
Summing up the market picture, Lane's presentation suggested that current dynamics are consistent with a one-off increase in the price level rather than a persistent acceleration of inflation above the ECB's 2% target.
Context and implications
Lane linked several observable data points - financial market pricing, consumer sentiment, purchasing managers' indices, firms' price expectations and the wage tracker - as the set of indicators the bank will monitor closely as it determines its policy stance at successive meetings.
He did not indicate any specific policy moves in his remarks, but underscored that the ongoing assessment will be data-driven and revisit the evolving scenario at each meeting.