ECB Can Disregard Bumps in Disinflation, Villeroy Says

(Bloomberg) -- The European Central Bank can look through one-off fluctuations in euro-area inflation statistics, according to Governing Council member Francois Villeroy de Galhau.

“Data are inherently noisy and there is a risk of overreacting to volatile news, especially until the end of this year,” he said. “So ‘data-driven,’ in the current inflation environment, does not mean ‘flash-driven.’”

The Bank of France governor spoke in Paris just days before the publication of the latest reading of euro-zone inflation, which may show mild slowing again after a setback in May when price growth surged more than anticipated.

In France, data on Friday showed that consumer-price growth slowed from a year earlier, as food and energy price-increases decelerated. According to a national price index, inflation eased even more than in the harmonized reading, reaching 2.1% in June, the lowest rate since August 2021.

“Let me stress that French inflation in June published this morning at 2.5% after 2.6% in May, is encouraging news — disinflation is on track,” Villeroy said.

French Inflation Slowed Again in June

He said that, compared with 2022, when the ECB was forced to ramp up interest rates aggressively to tame surging consumer prices, there’s less cause for policymakers to be worried now by quirks in the statistics.

“As data surprises are now smaller and revisions to the current assessment more minor compared to two years ago, we are gaining more confidence in the forecast and more scope to disregard smaller bumps in the disinflation process,” he said.

ECB officials earlier this month cut the deposit rates from a record high, though they’ve been hesitant to give clear guidance on when a next step might happen. Markets are expecting another two reductions this year, though a move at the July meeting looks very unlikely.

Villeroy stopped short of discussing the rate path, saying only that “our pragmatic gradualism is consistent with a gradually higher weight given to the projected outlook — and giving gradually lower weight to the inflow of data. This reflects time-varying uncertainty and risks.”

The governor spoke just two days before the first round of French parliamentary elections that are expected to inflict a heavy defeat on President Emmanuel Macron’s centrist group.

Villeroy, who previously warned that the next government must avoid deepening budget deficits, didn’t discuss the matter on this occasion.

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(Updates with comments on French inflation in fifth paragraph)

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