LONDON (Reuters) – Underlying inflationary pressures are finally easing in the euro zone and rate hikes have started to trickle down to the economy, the vice president of the European Central Bank (ECB) said on Friday. Luis de Guindos.

The ECB has raised interest rates at each of its monetary policy meetings since July 2022 and has committed to another hike this month, saying it does not plan to ease its tightening until it has not noted a clear recovery in the outlook for so-called core inflation, that is to say excluding volatile items such as food and energy.

“While underlying price pressures remain strong, most indicators have started to show signs of weakening,” Luis de Guindos said at an event in London.

“The various measures of underlying inflation show that it has recently started to decline, although it is still significant by historical standards,” he added.

The vice-president of the ECB underlined that the work of the bank was therefore not yet finished, remarks which confirm that the rise in rates expected this month is practically undebatable, while the next meeting is scheduled for September.

“Services inflation and labor costs in particular need to be watched closely, as they are now a major driver of headline inflation,” de Guindos said.

He also pointed out that past ECB rate hikes will continue to impact inflation in years to come, saying it takes time for policy to trickle down to the real economy.

“With the (monetary) tightening, inflation in 2022 was only half a percentage point lower than it would have been without (rate hike), while the downside impact is expected to be two percentage points on average over the period 2023-2025,” he added.

(Report David Milliken and Harry Robertson; written by Balazs Koranyi; Claude Chendjou, edited by Blandine Hénault)

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