ECB Chief Economist Philip Lane Talks European Inflation
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Bloomberg Audio Studios. Podcasts. Radio. News. So here's the latest this morning. The ECB warning tariffs may be more disinflationary than inflationary for Europe. This after President Trump said he's confident of reaching a trade deal with the EU. Joining us around the table here in our studio in Washington, D.C., the chief economist of the European Central Bank, Philip Lane. Philip, it's good to see you, sir. Good morning.

Thanks for being with us here in Washington. So the Governing Council meeting, I imagine, was very different this time around than a number of months ago. When you walked into that room and presented changes to the economy, what did you tell the team? Sure. I mean, I think it was a gear change for several reasons. So...

Of course, our core business has been to try and get inflation back down from a high number to our target. So I think there was a milestone in this meeting in the sense of the most recent data had come in quite low.

we'd been waiting for a services inflation to kind of drop and it has been dropping. And then we had surveys showing that basically the wage dynamic this year and in '26 is lower than we expected. So basically, if you like, if you clear the table about the historic issue, are we safely bringing inflation back to target? I think it's not entirely settled, but a lot of it is settled. So the gear change was, of course, now we have new things to talk about.

And really since all the way back to last summer, trade policy uncertainty has been part of what we've had to talk about. But we still have trade policy uncertainty, but we also have trade policy news. You know, lots has happened.

And then the other element of what we've seen is, of course, and that happened, by the way, like a day or two before our March meeting, was the German breakthrough on fiscal policy. So we already had that, if you like, in the early incarnation at the March meeting. We know more now, but it's still, you know, in terms of what other European countries are going to do, it's something that's still in discussion.

So what I would say, if you put all of that together, and I think you're probably hearing this from various colleagues and other people this week, is if I take a longer-term perspective, and the IMF in their publications this week, a lot of the data go out to 2030. If I take a 2030 perspective, you know, I think there's a lot of grounds to have a renewed optimism that essentially with more fiscal support, the credibility of...

delivering our 2% target on a kind of long-term basis is stronger. The case for the European economy to be more resilient, to grow from a domestic source, not just from running a big export machine, is more credible. But of course we have to navigate from where we are now, where, as you said in your intro,

Immediately, in the short term, the way it's playing out with Euro appreciation, with a big drop in energy prices, the disinflationary forces are there. But I would say maybe, you know, I wouldn't load it all onto trade policy. Sure. But what we also see now is a portfolio shift.

So there's a clear portfolio shift going on, which is, I think, the way you can reconcile your appreciation in the middle of this trade discussion. As you know, Philip, that sort of begs the question why you don't act more aggressively. Does that give you the space to act more preemptively? Well, I think a very important narrative we had last week, and it was repeated throughout the monetary policy statement,

was resilience. What we're seeing is the European economy growing. Two years ago it was kind of more stagnating. So we said the European economy is going to recover. We saw modest but still market recovery last year around 0.9. We have 0.9 written down in March for this year. And that's basically because with incomes going up, consumption is sure to recover.

with our monetary policy and the general improvement in the economy, investment should recover with more government support. So all the domestic engines are there. So what you have to think about is all of that, if you like, is saying that the economies should be growing, even marking down some trade negative. And this is why we're not in a situation where we

we see some dramatic change in the external environment or in price pressures and so on. So steady is okay, I think. Hold on a second. Are you saying that what we've seen with respect to U.S. policy and the uncertainty isn't increasing the chance of recession materially for the Euro region? Well, I mean, I think our overriding theme, of course, is uncertainty and let's not get ahead of ourselves in terms of being too sure about any path for the economy. But I think the message is...

not me dreaming it up. If you look at the external watchers, if you look at the IMF, it's fairly modest markdowns on the growth rate for the European economy. The US, of course, has a major trade policy issue with the world.

We have a trade policy issue with the US. The US is an important trading partner, but it's not our only trading partner. So directionally, it is a markdown. There is a markdown, but it's important to say it's a markdown from a growth rate around 0.9 to a little bit less. Let's see in the coming weeks how much less. And I think if you look at the surveys this week, the surveys have elements of people being concerned about

But they also have elements that say, right now we're busy. Manufacturing is a bit busier than it was. That could be a little bit of front-running of tariffs, for sure. But it's also, remember, the recovery narrative. Europe has been stagnating. The American economy has grown quickly. So if you like, in terms of...

If there was room for the American economy to decelerate and then trade policy is adding to that, what I'm saying to you is essentially the baseline for Europe was to grow a bit more quickly. And so the resilience is there. You can take a trade hit without going to using that word, which I...

that you mentioned. You mentioned, of course, that Europe has more trading partners than the United States. How concerned are you that if the walls keep going up in the United States, China will have to just dump somewhere and it's going to be on the continent? So I think, directionally, an element of that must be expected. But I think China fully understands that if you listen to their policy announcements,

their focus is on improving domestic demand. So in terms of the reorientation from the US, I would allocate a fair amount to domestic demand, some amount to around the world. But I think also China understands it's a large economy and a bit of restraint in exporting goods.

I've got 20 seconds left. I just wanted to jump in. Olly Raine was busy this morning, your governing council partner, and he made the point that we should be open to larger interest rate cuts. Is that a position that you and the team agree with? Philosophically, we don't pre-commit to any rate path. Of course. And so this is why, again, it's important. And I think the governing council, I think...

tries hard to maintain this, it is, you can express that in different ways. And in particular, there's no reason to say we're always going to do the default 25. Philosophically, I agree with that. But what I said to you earlier on is right now, the growth performance...

I'm sure to be marked down. It's still a growing economy. We've inflation, I think, to the downside. But we don't need to be too dramatic about it. Philip Lang, the chief economist of the ECB. Big news. Verizon Small Business Days are here from April 21st through 27th. Book your appointment today to make our experts your experts. Get a free tech check today.

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