ECB’s Müller: See Risk That Services, Wages Could Still Keep Inflation Elevated

18 October 2024

By David Barwick – FRANKFURT (Econostream) – Inflation in the euro area could still remain too high due to elevated services prices and wage increases, European Central Bank Governing Council member Madis Müller said Friday.

 

In a blog post on the website of the Estonian central bank, which he heads, Müller said that the ECB had decided to cut rates yesterday because slow growth limited price pressures.

 

‘However, it cannot be said that the near-term outlook for the Eurozone economy has changed drastically in just a few weeks’, he said. ‘It is still likely that the economy, which has so far been figuratively puttering, will start to work more and more smoothly, and the price increase will slow down permanently, close to the central bank's target of 2%.’

 

‘There is still a risk that the still rather rapid increase in the price of services and the related average wage increase may keep inflation in the euro area faster than the objective of the European Central Bank’, he said. ‘This, in turn, would mean that the central bank cannot lower interest rates so quickly.’

 

The ‘general feeling’ was that growth in the region would be ‘rather more modest’ than previously thought, which would reduce price pressures, he said. Bleak economic prospects in the largest member states were an important element of this, he indicated.

 

‘In the euro area as a whole, economic growth will be more modest than could have been expected just a month or two ago, and this will probably also reduce the pressure for price increases’, he said.