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Eurozone rate-setters have played down concerns that inflation in the region could remain uncomfortably high, with minutes of the July vote saying officials had an “open mind” to cutting rates at their next policy meeting.
The July vote, at which the European Central Bank held its benchmark deposit rate at 3.75 per cent, took place amid signs that underlying price pressures could remain stickier than hoped.
Final inflation figures for July, published this week, showed core inflation, which excludes volatile food and energy prices, was 2.9 per cent, flat on May and June.
Inflation in the region’s dominant services sector fell only slightly to 4 per cent, from 4.1 per cent in June.
However, according to minutes of the July meeting, published on Thursday, officials believed that higher-than-expected core inflation readings for June should not dissuade them from considering cutting interest rates again in September.
“The September meeting was widely seen as a good time to re-evaluate the level of monetary policy restriction,” the minutes said. “That meeting should be approached with an open mind.”
The minutes added that reliance on data to support a loosening of monetary policy did not mean “being overly focused on specific, single data points”.
The ECB, which targets headline inflation of 2 per cent, cut its deposit rate from 4 per cent in June. Markets think another quarter-point rate reduction is a near certainty when the governing council meets in three weeks.
“We don’t think that the minutes of the July meeting warrant a change of our call for two more ECB cuts this year in September and December,” said Mateusz Urban, senior economist at Oxford Economics.
“This week’s very mixed bag of recent data releases and the risk of a small stagflationary push will intensify the debate at the ECB,” said Carsten Brzeski, global head of macro at ING bank. “Still, the new stagflationary risk is not yet large enough to stop the ECB from cutting rates again in September.”
“The minutes provide some insights on the governing council’s thought process, and September was viewed as a good time to review policy,” said Silvia Merler, head of policy research at Algebris.
Hopes of a cut were bolstered by wage data published by the ECB earlier in the day.
Negotiated wages, a subset of the broader wage index used by ECB rate-setters, grew at an annual pace of 3.6 per cent in the second quarter of 2024, substantially slower than the 4.7 per cent pace recorded in the first quarter.
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