European Central Bank to inflict pain as it hikes rates into next year, Lane says

‘We do think that this is going to dampen demand, we’re not going to pretend this is pain free,’ Lane says of raising interest rates into 2023

The European Central Bank could raise interest rates into next year, causing pain for consumers as it tries to depress demand that is now increasingly adding to sky high inflation, chief economist Philip Lane said on Saturday.

“We do think that this is going to dampen demand, we’re not going to pretend this is pain free,” Lane told a conference. “Demand is now a source of inflation pressure, it was not six or nine months ago in the same way it now is.” Most economists estimate that the neutral rate, where the ECB is neither stimulating nor holding back growth, is between 1.5% and 2%. Markets however see the top of the rate cycle higher and investors now price in rates just above 2.5% next spring.

But price growth has now broadened out and started to seep into all aspects of life while robust consumer demand is also driving prices.

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