Eurozone inflation data showed slower growth, at 2.2% in August. The ECB remains cautious about its next moves, here’s why.
The ECB is back in the spotlight after the Eurozone today revealed the inflation data for August. With a consumer price growth rate of 2.2%, the target set in Frankfurt (2%) has not yet been reached, although it is closer.
The updated results from Eurostat help to understand the aspects that are still critical for the central bank: in August 2024, the highest contribution to the annual inflation rate of the euro area is derived from services (+1.88 percentage points, pp), followed by food, alcohol and tobacco (+0.46 pp), non-energy industrial goods (+0.11 pp) and energy (-0.29 pp), as stated in the note.
The services are being closely monitored by the members of the Governing Council. Indeed, this rumor could still generate upward inflation pressure, which would slow the euphoria of the cycle of rate cuts that began in June (so far the reduction has been 50 basis points, in June and September).
Markets are now trying to guess when the next move will come: most bets are concentrated on December and some are also discounting another cut in October.
ECB caution on inflation, here’s why
Inflation in the euro area is still not as low as the European Central Bank would like, so interest rates must remain sufficiently high to resolve the price pressures, Bundesbank President Joachim Nagel said on Wednesday.
Speaking at a Commerzbank event in Frankfurt, he said the path forward for interest rates was open, but that borrowing costs “certainly will not fall as quickly and sharply as they have risen”.
Nagel argued that the process of disinflation is “stubborn”, not least because wage growth is only slowly easing. Price pressures in the services sector also remain high, sounding alarm bells. “In Germany, high wage increases were agreed in the most recent collective bargaining agreements. And relatively high new agreements are also expected in the upcoming negotiations,” he said.
He added that Germany’s labor shortage would likely keep upward pressure on wages in the long term.
More optimism came from French President Francois Villeroy de Galhau, who said the ECB should continue to cut rates, as inflation is set to return to a stable 2% next year.
In a more uncertain environment in 2024, however, the central bank will likely be cautious and move lower after October.
Original article published on Money.it Italy 2024-09-18 15:40:20. Original title: L’inflazione in Eurozona è al 2,2%, cosa significa per la Bce?
