ECB's Philip ​Lane says he is confident inflation is returning to 2pc target

Philip Lane, chief economist of the European Central Bank. Photo: Alex Kraus/Bloomberg

Alexander Weber

European Central Bank (ECB) chief economist Philip Lane has said recent euro-area data has made him more certain that inflation is returning to the 2pc goal, raising the likelihood of a first interest-rate cut in June.

Speaking in an interview with Spanish newspaper El Confidencial, the Irish official cited a report on consumer prices last week that showed progress in the service sector for the first time since November.

That was “an important initial step in the next phase of bringing inflation down”, according to Mr Lane.

“Both the April flash estimate for euro-area inflation, and the Q1 GDP number that came out, improve my confidence that inflation should return to target in a timely manner,” he said.

“So, as of today, my personal confidence level has improved compared with our April meeting. But of course, more data will arrive between now and June.”

While inflation held at 2.4pc last month, an underlying measure that strips out volatile items including energy and food continued to retreat.

Gross domestic output rose by 0.3pc in the first three months of the year, which was more strongly than economists had expected.

The data did little to change expectations that ECB officials will reduce borrowing costs at their June 6 meeting for the first time since 2015, following a series of increases. What happens after that is less clear, with many observers speculating about how a potential delay to monetary easing in America will affect the euro area.

Mr Lane said the ECB will be driven by the European outlook, and the combined effects of decisions taken by the Federal Reserve would be “largely contained”.

“We should not exaggerate the impact. The US economy and US interest rates affect the euro area in different ways and, essentially, these different mechanisms work in opposite directions.”

Mr Lane also said that officials will keep a close eye on events in the Middle East, and that they need to be “very careful” in their analysis.

“It is a month-by-month assessment, but in the longer term we have to accept that we live in a world that is going to face a lot of geopolitical tensions over a number of years,” he added.

Mr Lane, a former governor of the Central Bank of Ireland, is one of the six members of the executive board of the ECB, along with president Christine Lagarde and vice-president Luis de Guindos.