ECB is betting on service prices to bring inflation back to target, Lane says By Reuters

FRANKFURT (Reuters) – Eurozone inflation is set to ease this year with muted wage growth but the outlook is too uncertain for the European Central Bank to give clear guidance on interest rates, Philip Lane, analyst the core of the bank’s economy.

The ECB cut interest rates four times last year and investors see three or four more moves by 2025 as inflation, now at 2.4%, could reach its 2% target. The ECB in the coming months regardless of the global economy.

Speaking at a Goldman Sachs event in Hong Kong, Lane argued that the biggest change will be in services inflation, the single largest item in the consumer price basket, which has been stuck. about 4% for most of last year and keeping the whole number. high despite a sharp drop in energy and imports.

“We think service inflation will moderate slightly in the coming months,” Lane said.

Slower wage growth may be the biggest factor in slowing the rise in service prices, but firms are also seeing lower cost pressures, Lane added.

However, given that the outlook is fraught with risk, including global trade tensions, the ECB cannot make a clear commitment to cut interest rates, Lane argued.

“From our perspective, to say that this is where we think the speed of the future is going to be suggests a certainty that we don’t feel,” Lane said.

While Lane’s views are among the most cautious, most ECB policymakers, including Christine Lagarde, the bank’s president, have made it clear that a sharp cut is likely, and the question is about the timing and size of the next steps.

Speaking about consumer awareness, an important game for policymakers, Lane argued that households can reduce their high savings rate, but only moderately.

The household savings rate was at 15.3% in the third quarter of last year, up from 12% to 13% before the pandemic, keeping aggregate consumption depressed and economic growth subdued.

However, improved real wages and lower bank deposit rates are likely to increase spending, even if political tensions may still affect sentiment.

“So, we think this (high storage rate) will come down, but not by much,” Lane said.