Eurozone policymakers have dismissed worries that inflation in the zone might persistently stay at an uncomfortably high level, as per the July vote’s minutes. They’re still considering a rate cut at their upcoming policy meeting. When the benchmark deposit rate was maintained at 3.75 per cent by the European Central Bank (ECB) during the July vote, fears were that the underlying price pressures might not stick as hoped.
Core inflation figures, not including fluctuating costs for food and energy, remained steady at 2.9% in May, June, and the final July figures, which were released this week. Only a slight decline, from 4.1% in June to 4% in the crucial services sector was seen.
However, from Thursday’s minutes of the July meeting, it is evident that the officials didn’t think the higher than predicted core inflation rates for June should deter them from contemplating another interest rate drop in September. They stated that the September meeting seemed a fitting occasion to reassess monetary policy’s restriction level.
The ECB, targeting a headline inflation of 2 per cent, lowered its deposit rate from 4 per cent in June. There’s a wide belief in the markets that another quarter-point rate reduction is highly likely during the governance council’s meeting in three weeks’ time.
Despite mixed recent data release and a minor risk of stagflation, Mateusz Urban, a senior economist at Oxford Economics, and Carsten Brzeski, the global head of macro at ING bank, believe that two more ECB cuts are likely this year in September and December. They mentioned that the newer stagflationary risk is not enough to prevent the ECB from initiating a rate cut again in September.
Silvia Merler, who leads policy research at Algebris, has suggested that the minutes offer a certain level of understanding about the governing council’s deliberation and that September was deemed suitable for a policy review.
The possibility of a reduction was enhanced by the wage information published by the European Central Bank (ECB) earlier in the day. As per the ECB, Negotiated wages, which are a part of the comprehensive wage index utilised by ECB rate setters, experienced an annual growth of 3.6 per cent in the second quarter of 2024, a rate significantly slower than the 4.7 per cent increase seen in the first quarter. (Source: The Financial Times)