Christine Lagarde, the ECB president, said the current situation is hard to read because an energy shock and AI are pulling in opposite directions. She said it is very difficult to disentangle supply-driven and demand-driven shocks. But she added that it is still necessary to apply tools to avoid inflation running away.

That is a more cautious framing than some of her colleagues use. Peter Kazimir, a Governing Council member, has said the debate has moved from whether further action is needed to how much, and that waiting for inflation to rise is not smart policy. Kocher, also on the Council, has said there would be a need for action if the situation does not quickly improve. Klaas Knot, a candidate to succeed Lagarde, expects core inflation and second-round effects (the spread of higher energy costs into wages and other prices) to pick up, and a somewhat hawkish ECB response.

The data give both camps something. Eurostat's flash estimate puts euro area inflation at 4.0% in October, up from 3.8% in September, with energy up 20.8%. Core inflation was unchanged at 2.5%. Producer prices rose 11.1% in September from a year earlier, against forecasts of 10.6% and a previous 8.2%.

On September 28 Lagarde said wages show no material response to the energy shock. In her speech to the European Parliament's economic affairs committee on that date, she said AI affects, and to some extent already affects, investment, labour markets and inflation, though its precise effects remain uncertain.

The Council left rates at 2.50% on October 29, and officials are ready to raise in December. Lagarde's comment looks like a check on that building consensus, and it keeps the December decision open.

© Raydn · raydn.us