Policymakers at the European Central Bank stated on Wednesday that more progress in reducing inflationary pressures is required and that businesses and governments must work together to avoid further policy tightening.

Investors are increasingly wagering that the ECB will drop rates after ending a string of ten straight rises last month. This may happen as early as April of next year, given that consumer price growth is already down around 3% after rising beyond 10% in only a year.

Speaking in different European settings, authorities were eager to temper any excitement over the sharp price decline, contending that the overall situation was more nuanced. Policymakers went so far as to say that more rate increases shouldn’t be ruled out.

Chief economist Philip Lane of the European Central Bank (ECB) stated in Riga that “you do see some progress (in underlying inflation), but not yet enough.” He also noted that he did not find “a lot of comfort” in the decline in overall inflation since it was primarily due to a reversal of rises in energy prices from the previous year.

After climbing to nearly 10% a year earlier, inflation dropped to 2.9% last month. Still, Lane forecasted consistent or even higher price increases the following year, with rates in the “high twos or low threes” in 2024 and a return to the 2% objective in 2025. While this was happening, Bundesbank President Joachim Nagel repeated the cautions of fellow German and ECB board member Isabel Schnabel over the dangers of the final phase of the ECB’s activities.

In London, Nagel stated, “The ‘last mile’ before we reach our inflation target may be the hardest.” Schnabel has previously noted that the drop from 3% to 2% may take a lot longer than the rise to the present level. Even if markets see a 0% possibility of such a move, policymakers from Latvia, Martins Kazaks, and Ireland, Gabriel Makhlouf, have stated that more rate rises should not be ruled out just yet.

“In my opinion, it is far, far too early to discuss whether we should begin lowering or cutting rates… Furthermore, Makhlouf stated in Dublin that “it is premature to declare that we have reached the top of the ladder” of interest rate increases.

The price rise estimates for the upcoming year increased significantly from the previous month. Still, they were stable at slightly over the bank’s objective for the next three years, according to the ECB’s own consumer expectations survey, released earlier on Wednesday.

Lane and Nagel stated that accepting reduced margins and for businesses to begin absorbing some of the relatively rapid wage increases would be a necessary prerequisite for sustained disinflation.

“I expect firms’ profits to moderate in the coming quarters and absorb some of the recent strong wage increases,” Nagel stated. If profits increased much instead, high inflation would last longer. And the (ECB) would have to respond to this.” During the time of rapid inflation, corporate profit margins increased as a result of corporations raising prices well in advance of cost increases, capitalizing on market volatility, and eroding any potential for future inflation.

Profits “do need to adjust,” according to Lane. “The more firms absorb wage increases via lower profits, the more inflation comes down, and ,workers will not feel the need to ask for such high wage increases.” According to Nagel, to lessen the pressure on the ECB, governments must likewise impose expenditure restrictions.

“A few weeks ago, the IMF advised us not to announce our win too soon. Due to a historical trend of prematurely declaring victory, Makhlouf stated.