The&nbsp;battle to get inflation back to the ECB's target of 2 per cent is far from over, and interest rates must be at least as high as needed to do so without excessively hurting the economy, the European Central Bank's chief economist, Philip Lane, said.

"The return to target is not yet secure," Lane said Saturday. "In particular, the monetary stance will have to remain in restrictive territory for as long as is needed to shepherd the disinflation process towards a timely return to the target."

However, in prepared remarks for a panel at the Federal Reserve's annual conference in Jackson Hole, he warned that too-tight policy also poses dangers — particularly to a eurozone economy that data suggest is losing momentum.

"The return to target needs to be sustainable," Lane said. "A rate path that is too high for too long would deliver chronically below-target inflation over the medium term and would be inefficient in terms of minimising the side effects on output and employment."

The comments come as more and more policymakers are joining the chorus of expectations in markets for a second cut in borrowing costs at the ECB's next meeting, in September. Some also signal that another one or two cuts are possible this year beyond that.

The ECB started to cut rates in June, citing greater confidence that inflation would come back to target in the second half of 2025. Most officials see recent data as consistent with that projection, although there is a firm sense they have become more worried about the deteriorating economic backdrop.

Speaking later on the panel, Lane was more sanguine.

"There's a lot of momentum in the European economy," he said. "There should be a lot of recovery."

"There has been good progress in delivering the overriding goal of making sure that inflation returns to target in a timely manner," Lane said. "Crucially, this disinflation process has been underpinned by the forceful transmission of monetary policy to the financial system, the level of demand and inflation expectations."

The battle to get inflation back to the ECB's target of 2 per cent is far from over, and interest rates must be at least as high as needed to do so without excessively hurting the economy, the European Central Bank's chief economist, Philip Lane, said.

The battle to get inflation back to the ECB's target of 2 per cent is far from over, and interest rates must be at least as high as needed to do so without excessively hurting the economy, the European Central Bank's chief economist, Philip Lane, said. "The return to target is not yet secure," Lane said Saturday. "In particular, the monetary stance will have to remain in restrictive territory for as long as is needed to shepherd the disinflation process towards a timely return to the target." However, in prepared remarks for a panel at the Federal Reserve's annual conference in Jackson Hole, he warned that too-tight policy also poses dangers — particularly to a eurozone economy that data suggest is losing momentum. "The return to target needs to be sustainable," Lane said. "A rate path that is too high for too long would deliver chronically below-target inflation over the medium term and would be inefficient in terms of minimising the side effects on output and employment." The comments come as more and more policymakers are joining the chorus of expectations in markets for a second cut in borrowing costs at the ECB's next meeting, in September. Some also signal that another one or two cuts are possible this year beyond that. The ECB started to cut rates in June, citing greater confidence that inflation would come back to target in the second half of 2025. Most officials see recent data as consistent with that projection, although there is a firm sense they have become more worried about the deteriorating economic backdrop. Speaking later on the panel, Lane was more sanguine. "There's a lot of momentum in the European economy," he said. "There should be a lot of recovery." "There has been good progress in delivering the overriding goal of making sure that inflation returns to target in a timely manner," Lane said. "Crucially, this disinflation process has been underpinned by the forceful transmission of monetary policy to the financial system, the level of demand and inflation expectations."

ECB's Lane says 2 per cent inflation target remains unsecured

Eurozone inflation slowed in September to near a three-year low because of cheaper energy although core inflation edged higher, highlighting the challenges facing the European Central Bank.

The divergence between the headline and core figures underlines the split of opinion over the state of the eurozone economy among the governors of the ECB. It wants to keep inflation below, but close to 2 per cent over the medium term but has so far failed to boost price growth despite years of unconventional steps.

Eurostat said on Tuesday that consumer prices in the 19 countries sharing the euro rose 0.2 per cent month-on-month in September for a 0.9 per cent year-on-year gain. Economists polled by Reuters had expected an unchanged reading of 1.0 per cent.

The weaker than expected September number, the lowest year-on-year figure since November 2016, was mainly due to a 1.8 per cent year-on-year fall in energy prices.

Excluding energy and equally volatile unprocessed food, price growth accelerated to 1.2 per cent in September from 1.1 per cent in August. This number is called core inflation by the ECB which it monitors for monetary policy decisions,

An even more narrowly defined core inflation measure, which excludes energy, food, alcohol, and tobacco and looked at by many market economists, also accelerated to 1.0 per cent from 0.9 per cent year-on-year.

"It should continue to rise slightly in the coming months. However, the strong increase in underlying inflation hoped for by the ECB is still not in sight," said Christoph Weil, economist at Commerzbank.

The ECB decided on September 12 to resume asset purchases to inject more money into the slowing economy and in this way make prices grow more quickly.

But the decision was opposed by a third of ECB policymakers, including Germany's Sabine Lautenschlaeger who resigned before the end of her term last week.

ECB chief economist Philip Lane said last week the division was due to "ambiguity" over the state of the eurozone economy among ECB governors.

"We expect the central bank to take time to assess the impact of last month's easing package before taking further action," a team of Morgan Stanley economists said in a note.

They saw only a minimal boost to the economy even once quantitative easing restarted in November, with inflation remaining subdued. There were also a variety of downside risks to growth.

"With fiscal policy remaining reactive for now, we expect the ECB to take further action. Our base case is for another 10 bp cut in March, though the timing remains rather uncertain at this stage," the Morgan Stanley note said.

Eurozone inflation slowed in September to near a three-year low because of cheaper energy although core inflation edged higher, highlighting the challenges facing the European Central Bank.

Eurozone inflation slowed in September to near a three-year low because of cheaper energy although core inflation edged higher, highlighting the challenges facing the European Central Bank. The divergence between the headline and core figures underlines the split of opinion over the state of the eurozone economy among the governors of the ECB. It wants to keep inflation below, but close to 2 per cent over the medium term but has so far failed to boost price growth despite years of unconventional steps. Eurostat said on Tuesday that consumer prices in the 19 countries sharing the euro rose 0.2 per cent month-on-month in September for a 0.9 per cent year-on-year gain. Economists polled by Reuters had expected an unchanged reading of 1.0 per cent. The weaker than expected September number, the lowest year-on-year figure since November 2016, was mainly due to a 1.8 per cent year-on-year fall in energy prices. Excluding energy and equally volatile unprocessed food, price growth accelerated to 1.2 per cent in September from 1.1 per cent in August. This number is called core inflation by the ECB which it monitors for monetary policy decisions, An even more narrowly defined core inflation measure, which excludes energy, food, alcohol, and tobacco and looked at by many market economists, also accelerated to 1.0 per cent from 0.9 per cent year-on-year. "It should continue to rise slightly in the coming months. However, the strong increase in underlying inflation hoped for by the ECB is still not in sight," said Christoph Weil, economist at Commerzbank. The ECB decided on September 12 to resume asset purchases to inject more money into the slowing economy and in this way make prices grow more quickly. But the decision was opposed by a third of ECB policymakers, including Germany's Sabine Lautenschlaeger who resigned before the end of her term last week. ECB chief economist Philip Lane said last week the division was due to "ambiguity" over the state of the eurozone economy among ECB governors. "We expect the central bank to take time to assess the impact of last month's easing package before taking further action," a team of Morgan Stanley economists said in a note. They saw only a minimal boost to the economy even once quantitative easing restarted in November, with inflation remaining subdued. There were also a variety of downside risks to growth. "With fiscal policy remaining reactive for now, we expect the ECB to take further action. Our base case is for another 10 bp cut in March, though the timing remains rather uncertain at this stage," the Morgan Stanley note said.

Euro zone inflation slows to three-year low on cheaper energy

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ECB's Lane says 2 per cent inflation target remains unsecured

Euro zone inflation slows to three-year low on cheaper energy