Euro Zone Inflation Hits Three-Year Low, ECB Rate Cut in September Likely - Analysis by Balazs Koranyi
Euro zone inflation has dropped to its lowest level in three years, signaling a potential European Central Bank interest rate cut in September. While inflation slowed to 2.2% from 2.6%, underlying figures show a mixed picture with services inflation accelerating. The ECB is expected to cut rates on Sept. 12, but the real debate is whether more easing will follow in October. Market economists are more optimistic about the price outlook than the ECB, with expectations for six rate cuts by the end of next year.
The key concern for ECB policymakers remains rapid wage growth, particularly in the sensitive services sector. While wage growth has slowed, it still outpaces 2% inflation. The ECB argues that some wage catch-up is needed, but uncertainty remains until this process is complete. Germany's central bank warns of continued pressure on incomes due to demands for higher wages. Overall, while inflation may rebound by the end of the year, the path to sustained growth remains uncertain.