Looking Ahead to the “Last Mile” of Disinflation

For economists, policymakers and individuals around the world, inflation has been the most significant topic of discussion about the global economy over the past few years. Though some indicators point to slowing inflation, challenges remain in bringing it back to the 2% target used by many central banks.

During the Federal Reserve Bank of St. Louis’ annual Homer Jones Memorial Lecture on Nov. 2, 2023, Isabel Schnabel, economist and member of the Executive Board of the European Central Bank, shared her assessment of inflation and the factors that could determine the pace with which inflation in the euro area will return to 2% in the “last mile” of monetary policy. The event featured a welcome from St. Louis Fed Interim President and CEO Kathy O’Neill Paese before the presentation.

“Over the past 12 months, we have seen the first phase of disinflation,” Schnabel said, noting that headline inflation in the euro area fell to 2.9% in October from its peak of 10.6% one year earlier.

She attributed the rapid decline in inflation in the euro area to the reversal of supply side shocks, as global supply chain disruptions were resolved and energy and food prices fell from peaks reached after Russia's invasion of Ukraine.

“So these were the quick wins of the disinflation process,” she said.

Returning inflation from here to 2% in a timely manner may be more difficult, Schnabel said.

“Unlike during the first phase, disinflation during the last mile hinges critically on the appropriate calibration and effective transmission of monetary policy,” she said. “Large uncertainty around these two factors together with the risk of new supply side shocks pulling inflation away from our target once again makes this part of the disinflation process the most difficult.”

To hear Schnabel’s analysis of the challenges facing the ECB during this “last mile,” watch her presentation below. (Transcript available here.)

In addition to her presentation, Schnabel conducted a Q&A session with the audience.

About the Homer Jones Memorial Lecture

This lecture series is named for Homer Jones, who exemplified the highest qualities of leadership in economics and public policy. As research director and later senior vice president at the St. Louis Fed, Jones (1906-1986) played a major role in developing the Bank as a leader in monetary research and statistics.

Watch past lectures and learn more about the speakers.