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Lane Warns Second-Round Effects Outlast Energy Ease
ECB Chief Economist Philip Lane warns persistent wage and margin dynamics will keep core inflation elevated after energy shocks fade. Impact on EUR/USD rate differentials and the next policy decision.
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European Central Bank Chief Economist Philip Lane told markets that second-round effects from the energy shock will persist even after headline inflation from that source begins to fade. The statement directly challenges the view that falling energy prices give the ECB room to soften its tightening stance. Lane is forcing traders to look past headline disinflation and focus on the wage and margin dynamics that keep core inflation elevated.
The Second-Round Mechanism
The simple take from Lane's comment is clear: the ECB remains committed to tightening, and any reprieve in energy components will not trigger a policy pivot. That interpretation supports the euro in the near term. The more useful read, however, requires breaking down the mechanism. Second-round effects describe workers demanding higher pay to recover lost purchasing power and firms passing those labor costs through to prices. If these persist, the ECB cannot claim victory on price stability even with stable energy. For fixed income, that means a higher terminal rate or a longer stay at restrictive levels, which lifts real yields in the eurozone.