© Reuters. FILE PHOTO: European Central Bank (ECB) Vice-President Luis de Guindos attends a news conference following the ECB’s monetary policy meeting in Frankfurt, Germany December 15, 2022. REUTERS/Wolfgang Rattay/File Photo
By Joan Faus
BARCELONA (Reuters) – European Central Bank Vice President Luis de Guindos on Thursday singled out the rising price of services as his top concern in the ECB’s fight against inflation, saying they were being driven up by higher wages.
Inflation in the euro zone has fallen from record levels, but the price of services, which range from flight tickets to haircuts, are still rising strongly.
“What worries me the most in the underlying inflation trend is the trend in service prices,” de Guindos said at an event in Barcelona.
“Momentum in services… is rising. There’s demand and that’s because salary increases are accelerating.”
The ECB raised interest rates for a seventh straight time last week, albeit at a reduced pace, and hinted at more hikes.
Markets expect a fresh, 25-basis-point increase at the ECB’s June meeting and possibly one more by the end of the summer, followed by rate cuts starting early next year.
De Guindos said it was too early to say how many more times the ECB would raise its interest rates as this would mainly depend on the reaction to increases in borrowing costs.
“Don’t believe anybody who tells you what the terminal rate is going to be,” de Guindos said.
“I don’t feel comfortable or uncomfortable (about current investor expectations) but markets can be wrong about this.”
The President of the European Central Bank (ECB), Luis de Guindos, has identified services sector costs as the biggest threat to inflation in the eurozone.
Speaking in an interview with the Financial Times, Mr. de Guindos said that while the the single currency area is currently experiencing an unprecedented period of low inflation, services inflation is the key area to focus on.
The ECB president noted that average services inflation in the eurozone is around 1.5%, compared to the overall inflation rate of 0.9%. This suggests that services offer the greatest potential for price gains if prices enter into a rising trend.
Mr. de Guindos further highlighted that services, which range from legal advice to transport, account for 70% of the eurozone’s total economic output. This makes the sector particularly important from a macroeconomic perspective.
The ECB president also took a positive view on the current state of eurozone macroeconomic indicators, praising the three largest economies for their strong performance. The better-than-expected growth at the start of 2020, along with a number of fiscal stimulus measures, will help offset the impact of a slowdown as the year progresses, Mr. de Guindos said.
Overall, Mr. de Guindos draws attention to the importance of services sector costs in sustaining macroeconomic stability across the eurozone. The policies implemented by the ECB and its recognition of the underlying issues affecting inflation will be paramount in achieving this aim.