Fabio Panetta, ECB Governing Council member and head of the Bank of Italy, said that recent data and the outlook allow for a further gradual lowering of borrowing costs without jeopardizing the current fall in inflation.
According to preliminary data provided by Eurostat last week, the eurozone annual inflation slowed in June, confirming economists' forecasts. Meanwhile, core inflation remained unchanged, while economists had expected a slight decline. According to the report, the consumer price index rose by 2.5% per year after increasing by 2.6% per year in May. Economists also expected an increase of 2.5%. Meanwhile, on a monthly basis, the consumer price index rose by 0.2% after a similar increase in May. The core consumer price index - excluding energy, food, alcohol & tobacco - rose by 2.9% per year, as in May. Economists had expected an increase of 2.8% per annum.
"Interest rate cuts may occur gradually, accompanied by a return of inflation to the target level, if macroeconomic trends remain in line with ECB expectations," Panetta said.
As for the persistently high service sector prices, which are still a concern, Panetta stated that it is normal that they should fall with a lag compared to goods prices. He also added that wage growth is likely to slow down.
"According to ECB estimates, the impact of monetary restriction on prices will be even greater in 2024 than in 2023," Panetta said.
"As for the Italian economy, in May, the Bank of Italy forecast GDP growth of 0.8% this year, though that would be 0.6% when adjusted for the number of work days. But given the new quarterly data, forecasts may be raised by about 0.1%," Panetta said.