Lagarde speech: There are reasons to believe that disinflationary path will continue

"We expect that a pick-up in demand, if accommodated by fully utilizing hoarded labor, will lead to rising productivity growth," European Central Bank (ECB) President Christine Lagarde said while speaking at the ECB and Its Watchers XXIV conference in Frankfurt on Wednesday, per Reuters.

Key quotes

" We need to move further along the disinflationary path."

"The compression of profit margins has allowed wages to catch up without further accelerating inflation."

"Average wage growth in 2024 for all existing wage contracts fell from 4.4% at the time of our January Governing Council meeting to 4.2% at the time of our meeting in March."

"Given the delays with which data become available, we cannot wait until we have all the relevant information."

"In the coming months, we expect to have two important pieces of evidence that could raise our confidence level sufficiently for a first policy move."

"Latest data point in direction that wages are indeed growing in a way that is compatible with inflation reaching."

"The coming months will help us form an even clearer picture."

"It is difficult to assess whether these price pressures simply reflect the lag in wages and services prices and the procyclical nature of productivity, or whether they signal persistent inflationary pressures."

"Unlike in the earlier phases of our policy cycle, there are reasons to believe that the expected disinflationary path will continue."

"If these data reveal a sufficient degree of alignment between the path of underlying inflation and our projections, we will be able to move into the dialing back phase of our policy cycle."

Market reaction

EUR/USD showed no immediate reaction to these comments and was last seen losing 0.15% on the day at 1.0850.