European Central Bank Vice President Luis de Guindos said he’s particularly concerned about the accelerating inflation in service industries as policymakers weigh how much further to raise interest rates.
(Bloomberg) — European Central Bank Vice President Luis de Guindos said he’s particularly concerned about the accelerating inflation in service industries as policymakers weigh how much further to raise interest rates.
Guindos reiterated that the ECB is focused on core inflation as a key indicator of underlying price trends and highlighted the strength of the services sector.
“Services are performing better than manufacturing and that´s why for example countries where services are important, such as Italy or Spain, are growing more than Germany or the Netherlands,” Guindos told an event in Madrid Thursday. “The momentum of the underlying trend is accelerating.”
With ECB officials including Guindos saying the end of their unprecedented monetary-tightening cycle is coming into view, investors are pondering how much further they’ll push borrowing costs to return inflation to the 2% goal.
Remarks since the last rate increase, on May 4, have suggested the campaign of hikes may need to persist beyond the two quarter-point moves economists predict for June and July. Robert Holzmann, the hawkish governor of Austria’s central bank, has said the deposit rate should be lifted above 4% from 3.25% at present.
Underlying inflation in the euro area eased for the first time in 10 months in April, but, at 5.6%, it’s still almost three times the ECB’s target.
Guindos said that it’s too soon to say at what level the ECB will pause rates and insisted that the bank will take its decisions meeting-by-meeting rather than guiding investors over a longer time frame.
Madis Muller the Estonian central bank governor, said that those analysts forecasting that the ECB will start cutting rates early next year are probably premature.
He said that the majority of the ECB’s rate hikes have been done but it may still take a year or two before the full impact of that tightening feeds into the economy. In Estonia, the inflation rate fell to 13.5% in April after hitting 24.8% in August.
“Perhaps it’s reasonable to move forward more calmly,” Muller said.
The ECB Governing Council at its last rate-setting meeting on May 4 agreed that rates will rise to levels that are “sufficiently restrictive” to bring inflation back to its 2% medium-term target. Rates “will be kept at those levels for as long as necessary,” President Christine Lagarde said.
(Updates with comment from Muller and context on ECB stance in last two paragraphs)
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