The European Central Bank published a lecture by Executive Board member Philip R. Lane that sets out its analytical reading of the euro area’s post-pandemic inflation surge and subsequent disinflation, placing the episode in the context of the shift from a prolonged period of zero or negative rates to tighter monetary policy. The lecture compares euro area headline and core inflation since the October 2022 peak with past global disinflation episodes, including separate evidence for non-energy industrial goods and services. It also reviews the post-pandemic recovery in real GDP and demand components, tracks media attention to inflation, and presents microdata-based evidence on repricing frequency and non-linear responses of core inflation to energy price increases versus decreases. Further sections examine forecasting performance through one-quarter-ahead projection errors and a decomposition of recent HICP forecast misses, discuss model-based decompositions of supply and demand drivers of inflation, and present simulations of medium-term inflation expectation de-anchoring risks. The lecture also surveys underlying inflation measures and reports model-based assessments of monetary policy, including optimal-policy exercises in real time versus with hindsight, an early-tightening counterfactual, and estimated impacts of the tightening on HICP and real GDP across a suite of models.
European Central Bank 2025-05-23
European Central Bank publishes Philip Lane lecture on euro area inflation, disinflation and monetary policy tightening
ECB Executive Board member Philip R. Lane analyzed the euro area's post-pandemic inflation surge and disinflation, amid a shift to tighter monetary policy. The lecture compares euro area inflation trends with past global disinflation, examines forecasting performance, and discusses model-based assessments of monetary policy impacts on inflation and GDP.