ECB Looks to Services Prices to Meet Inflation Target Says Chief Economist

Eurozone inflation is expected to decline in 2025 due to slower wage growth and reduced cost pressures, according to European Central Bank Chief Economist Philip Lane. Speaking at a Goldman Sachs event in Hong Kong, Lane emphasized that services inflation, which has remained around 4%, is critical for achieving the ECB’s 2% target. While energy and imported goods have seen significant price reductions, the services sector continues to elevate overall inflation, Lane predicts a notable easing in this area in the coming months.

Lane highlighted that a slowdown in wage increases and lower cost pressures for firms would play a key role in reducing services inflation. Despite this optimism, he cautioned against providing explicit guidance on interest rates due to uncertainties stemming from global trade tensions and other economic risks. The ECB, which cut rates four times in 2024, is expected to make further cuts this year, but Lane emphasized the difficulty in forecasting the timing and magnitude of these adjustments.

Consumer behavior remains a challenge for policymakers, with household savings rates still above pre-pandemic levels, dampening consumption. However, Lane noted that improved real incomes and lower bank deposit rates could moderately boost spending, even as geopolitical uncertainties persist. Policymakers, including ECB President Christine Lagarde, agree on the likelihood of future rate cuts, but the precise steps remain under deliberation.