Philip Lane, the European Central Bank’s (ECB) Chief Economist, has joined ECB President Christine Lagarde in suggesting that another interest rate cut in July is unlikely. Lane emphasized that last month’s inflation data doesn’t provide clear answers to the ECB’s lingering questions about underlying price pressures.
Key Points:
- July Meeting Focus: Lane stated, “The real questions for the July meeting will be economic in nature.”
- Persistent Concerns: “We still have questions about service sector inflation based on the June inflation data,” Lane remarked during the ECB’s annual forum in Sintra, Portugal. “These data don’t resolve that issue.”
- Cautious Approach: Following last month’s initial rate cut, ECB officials are carefully evaluating the possibility of further reductions. They’re particularly focused on service sector inflation and wage growth as key drivers of future price trends.
- Upcoming Data: Eurozone consumer price data for June is set to be released on Tuesday. Economists predict CPI growth will slow from 2.6% to 2.5%.
- Lagarde’s Stance: On Monday, Lagarde noted that the ECB still faces several uncertainties regarding inflation and needs time to gather sufficient data to “ensure the risk of inflation exceeding the target has passed.”
- Service Sector Focus: Lane emphasized, “The key is service sector inflation. What we’ve seen in recent days is that service sector inflation remains an outlier. We need to determine if the rise in service sector inflation is a lagging factor, a legacy of rapid tightening, or a persistent factor. We need time to resolve this issue.”
- Political Turbulence: Addressing France’s political unrest, Lane stated he saw no signs of disorderly market changes that would necessitate ECB action. He views the market repricing as a natural occurrence during elections.
In conclusion, the ECB is adopting a cautious stance, emphasizing the need for more data and time to assess the inflation trajectory, particularly in the service sector. This approach suggests that further rate cuts may not be imminent, as the central bank seeks to ensure a sustainable path towards its 2% inflation target.