The euro area faces a risk of entrenched inflation that the European Central Bank is determined to combat by keeping interest rates high for a sustained period, Governing Council member Francois Villeroy de Galhau said, according to Bloomberg.
While energy prices have eased sooner than expected and upward pressure on food costs should fade from the third quarter, underlying inflation including services has risen steadily in recent months, the Bank of France chief said, according to prepared remarks for a speech in New York.
“We now face the risk of entrenched inflation, which lies in the underlying or core component,” he said on Tuesday. “In other words, inflation has become more widespread, and potentially more persistent.”
Earlier this month, Villeroy was the first ECB official to flag that the most aggressive bout of monetary tightening the euro zone has seen may be reaching its conclusion.
On Tuesday, he said that the effect of rate hikes to date will become greater in the coming months, and that if the ECB lifts borrowing costs further it may not be at the same pace.
“Our monetary policy response to rising inflation has been strong and swift,” Villeroy said. “We at the ECB are now moving from a sprint to a long-distance race. At our next meetings, we will make decisions on potential new rate hikes by looking at three key economic indicators: the inflation outlook, underlying inflation and monetary-policy transmission.”