ECB grapples with sticky services and core inflation
The euro zone’s headline inflation rate may have fallen closer to the ECB’s 2% target in recent months, but core inflation – which excludes the effects of energy, food, alcohol and tobacco – has remained steady for three consecutive months. 2.7%.
Service industry inflation At the same time, the proportion in the second half of this year has been stubbornly maintained at around 4%. Negotiate salary increases Another concern about the inflation outlook is that the inflation rate rose to 5.42% in the third quarter from 3.54% in the previous quarter.
In the latest forecast in September, the ECB staff macroeconomic forecasts showed average euro area inflation of 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.
—Jenny Reed
Economists expect ‘intense debate’ to lead to 25 basis points rate cut
Several economists told CNBC that the European Central Bank will discuss whether to cut interest rates by 25 basis points or 50 basis points on Thursday, but will ultimately take a smaller step.
A key point in the discussion may relate to how low interest rates need to go to reach “neutral,” where monetary policy neither stimulates nor constrains economic growth.
Last month, influential policymaker Isabel Schnabel tell bloomberg She expected rates to be “close to neutral territory” of 2% to 3% and warned against going too far below that level.
However, more dovish members such as Bank of France President Francois Villeroy de Galhau said: continue A rate cut of any size should be an option in December, and if growth remains weak and inflation below target, rates may need to be lowered below neutral – into accommodative territory.
Fabio Balboni, senior European economist at HSBC, previously told CNBC’s “Squawk Box Europe”: “This is the European Central Bank, so they are always very slow to move… Part of the problem There are great divisions within the ECB Governing Council.
Balboni said weak economic data, including German retail sales, would be taken into consideration, and there was disagreement over whether the fight against inflation was “not quite finished yet.”
The European Central Bank may cut interest rates by 25 basis points at each meeting, including in December, until September 2025, Bank of America Global Research strategists said in a note on Tuesday.
“With economic growth set to be at or below trend for most of 2025, we think it will be difficult for the ECB to skip the meeting until the[deposit facility]is just below the neutral rate (2%), at the level we are seeing (1.5%),” they said.
—Jenny Reed
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