The latest report likely confirms the view of those within the ECB that it is too early to start discussing interest rate cuts. Austrian National Bank President Robert Holzmann told Politico this week that such a discussion is unlikely to take place before June.
Growth in prices for services, which are typically prone to wage pressures, slowed slightly to 3.9%, confirming earlier data from some of the bloc's largest members.
Pepin Bergsen, EU macro policy analyst at Medley Advisors, said of X: “These service prices are sticky and currently account for half of headline inflation, which will make the ECB uncomfortable.” .
Headline inflation is expected to be volatile throughout the first half of 2024, and large base effects tend to exaggerate the underlying trend toward a return to stability. Wage negotiations and their impact on prices are also a key factor, with workers trying to regain lost purchasing power after two years of wages failing to keep up with prices.
Policymakers are keeping wage trends very close, hoping for slower wage increases and evidence that companies are absorbing higher labor costs through their profit margins rather than passing them on to consumers. I've been focusing on it.
The ECB expects inflation to hover around 2.7% in 2024, with the target expected to be reached in the second half of next year. However, the central bank has said it is likely to revise those forecasts downward at its meeting next week, and its senior economists published a research paper earlier this week suggesting the target could be reached as early as mid-year. announced.
Eurozone employment statistics released at the same time showed that the labor market remained fairly healthy. The seasonally adjusted unemployment rate returned to a record low of 6.4% in January, down from 6.5% in December and 6.6% a year earlier.
Despite the fastest rise in borrowing costs on record, the economy has stagnated since the ECB began raising interest rates in July 2022, although the job market has shown resilience. The euro zone largely avoided recession late last year, but a string of quarters with little or no growth has raised concerns that high costs of capital could derail an initial recovery.
On Friday, S&P Global research data showed the euro zone manufacturing sector remained in contraction in February, although the composite index suggested the sector bottomed out towards the end of last year.
