ECB: Accounts Show Confidence in Services Inflation Slowing to Target

ECB Accounts from there rate-setting meeting released here: https://www.ecb.europa.eu/press/accounts/2024/html/ecb.mg240704~fbde4f46aa.en.html

Highlights:

• Still confident services inflation will see a "marked" deceleration in 2025 relative to this year
• They note that large upside shocks to inflation could be addressed via a slower pace of cuts from their current restrictive level
• Meeting-by-meeting, data-dependent approach features heavily
• On data after the projections cut-off, they note that May inflation shows services inflation has surprised higher, but note that strength stems from insurance and healthcare, rather than wage-sensitive areas, which continue to moderate.
• On cutting rates - notes that waiting for full confirmation of inflation declining to 2.0% (projected for H2 next year) would imply cutting rates too late, creating a significant risk of undershooting the target.
• They see a 25bps rate cut as retaining restrictive policy, but allowing for greater protection against downside shocks - and is consistent with cautious approach to policy.
• There were reservations to cutting rates: risks to inflation tilted to upside, heightened geopolitical risk, view that small undershoot on inflation would be "much less" costly than continued overshooting - but there remains a willingness to support Lane's proposals for a cut.
• Dissenting view also flagged risk of inflationary pressures via the exchange rate channel with the US, by decoupling the rate path with the Fed.