According to Central Bank President Christine Lagarde, the ECB is approaching its target of an inflation rate of two percent. However, she is worried about inflation in the service sector.
According to its President Christine Lagarde, the European Central Bank (ECB) is close to achieving its inflation target in the euro zone. “We are approaching the point where we can declare that we have brought inflation sustainably to our medium-term target of two percent,” Lagarde said in an interview with the Financial Times.
However, the ECB President warned that one needs to be very vigilant about inflation in the services sector. “According to our latest figures, inflation is at 2.2 percent,” said Lagarde. “But the service sector is still at 3.9 percent and is barely moving. It hovers around four percent.”
Further interest rate cuts signaled
The ECB is aiming for inflation of two percent, which it considers to be the optimal level for the euro area. It assumes 2.1 percent for 2025 and 1.9 percent for 2026. These projections allow monetary authorities to further ease their monetary policy.
The European Central Bank has already cut its key interest rate four times this year. The deposit rate at which financial institutions can park their money at the central bank is currently 3.0 percent. In recent days, leading ECB representatives have already signaled further interest rate cuts in the coming year in view of the declining inflation risks and the sluggish economy.
“If the incoming data continues to confirm our baseline, the direction is clear,” Lagarde said a week ago. “We expect to continue to reduce interest rates.” The disinflation process is “well underway,” she explained. The risks to economic growth, however, have increased.
