ECB's Elderson: Services Inflation Needs to Decline Some More for Price Stability

17 January 2025

ECB's Elderson: Services Inflation Needs to Decline Some More for Price Stability
Frank Elderson, member of the European Central Bank Executive Board. Photo by Dirk Claus

By David Barwick – FRANKFURT (Econostream) - European Central Bank Executive Board member Frank Elderson on Friday said that the ECB was likely to continue easing and appeared to advocate a gradual approach, but observed that services inflation would have to decline for price stability to be restored.

 

In an interview with Dutch daily Het Financieele Dagblad also published on the website of the ECB, Elderson said that inflation was ‘going in the right direction’, but that much of the decline to date was due to less expensive energy, which would not remain the case.

 

‘Another source will then be needed if we are to reach our inflation target of 2% over the medium term’, he said. ‘Services inflation, which is still at 4%, will have to fall further.’

 

The ECB had to take care neither to ease policy too quickly, as in this case ‘dialling down services inflation sufficiently could become complicated’, nor to allow interest rates to remain too high for too long, as ‘then we risk undershooting our target’, he said.

 

Experience had shown how hard it was to deal with too-low inflation, he said.

 

‘The markets don’t think we’ve finished easing now that we’re at 3% and I don’t think we have, either’, he said. ‘But I can’t anticipate future decisions of the ECB’s Governing Council, I’m sure you understand.’

 

Asked about surging bond yields, Elderson said that capital markets were ‘one component but we are not guided by them.’ Rather, he said, the ECB focusses ‘on the money market interest rate.’

 

In response to the remark that the term of fellow Dutch Governing Council member Klaas Knot, who heads De Nederlandsche Bank, was due to end on 30 June, Elderson dampened any expectations that he might make way for Knot to join the Executive Board.

 

‘I have a European mandate and it’s for eight years’, he said. ‘And I’ll be staying here for eight years.’