FRANKFURT (Reuters) – Some policymakers at the European Central Bank were uneasy about cutting rates at the latest meeting, despite most expecting inflation to continue to decline, minutes of the ECB’s latest meeting showed on Thursday.
“Some participants felt that data released since the previous meeting did not provide greater confidence that inflation would return to its 2% target by 2025. (This) suggested that cutting rates was not consistent with the data dependence principle, and that not cutting rates was an option,” the minutes summarize.
However, with the exception of Austrian central bank governor Robert Holzmann, all participants voted in favour of a rate cut.
Some argued, however, that wage growth had surprised to the upside and inflation appeared stronger than expected, and that risks to price dynamics remained tilted to the upside.
“These figures suggest greater persistence, which could increase price pressures for some time, although wages themselves are a lagging indicator,” the report said.
“Any further delay in inflation’s return to target, therefore, could make it more difficult to anchor inflation expectations going forward,” some members agreed. “All this suggests that the last mile of inflation is the hardest to cover.”
The ECB said “most participants” expressed the same or more confidence in achieving the inflation target by the end of 2025.
Investors now anticipate 43bp of rate cuts by the end of the year, and 110bp of cuts by the end of 2025.
The main concern is that inflation remains too volatile for the ECB to be confident that it will return to its target by the end of 2025, as planned. Wage growth remains high and labor market shortages are exacerbating fears of persistent pressures on incomes.
The multi-year wage agreements nevertheless show that the rate of wage growth is slowing and is approaching the 3% considered by the ECB as compatible with its inflation target.
(Report by Balazs Koranyi, by Corentin Chappron, edited by Blandine Hénault)
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