ECB’s Kazāks: If Labour Market Remains Resilient, Services Inflation Could Stay Elevated

7 March 2025

By David Barwick – LISBON (Econostream) – European Central Bank Governing Council member Mārtiņš Kazāks on Friday warned that continued labour market strength could ultimately support services inflation at a high level.

In remarks at a conference of the Bank of Portugal, Kazāks, who heads Latvijas Banka, described the robustness of euro area labour markets as being ‘as if nothing has happened’.

‘If the labour market remains resilient, then wage pressures are likely to be maintained, and that could lead to a situation in which services inflation is also higher’, he said. In turn, to restore price stability in the context of persistent services inflation would imply deflationary developments for industry, which was undesirable, he said.

However, services inflation had been ‘somewhat easing’ recently, in line ‘the last few months by and large’ with what the ECB had projected, he said.

‘Of course, the worry is, will services inflation get stuck?’, he said. Services after all had been ‘quite sticky’, he noted.

Kazāks said that he would ‘stress the current situation of very high uncertainty’, which included the ‘overall environment’.

There were ‘two things that are going to make our life much more difficult’, namely fiscal developments and the geopolitical situation, he said. This argued for the ECB to maintain its ‘modus operandi of going ‘step by step, meeting by meeting by meeting’, he said.

‘We simply should do our job’, he said. ‘We should fulfil our mandate.’

However, central bank independence was an absolutely necessary condition for this and indeed the ‘very basis’ for monetary authorities to deliver, he said.

Inflation expectations meanwhile ‘have been quite nicely anchored’, he said.