ECB: First Q&A from MNI's Event with de Guindos; Reiterates ECB Guidance

Q: Could you give us a bit more colour on the tone of the communications after last week’s meeting?
A: What is important to bear in mind is that the disinflationary process in Europe has been quite intense. [...] We knew perfectly well at the beginning of the year that from April/May to year-end, inflation will likely hover around levels we have now, so it was not a surprise to us [to see the projections increased]. Services inflation remains the main risk to the outlook.

• Compensation per employee data was in line with the assumption in our predictions, but we expect this to decline towards 3.5% by next year.
• Second is the evolution of productivity, which has been very thin [weak]. This gives rise to unit labour costs, which are a threat to services inflation. In 2023, the rise in unit labour costs were compensated by profit margins and we expect this to continue.
• The main message is that we don’t have a predetermined path of decision/rate path.

Q: What is the risk that your expectation of hitting the target in H2 2025 slips into Q1 2026?
A: Market expectations are well-anchored around 2%.
•    At the beginning of 2025, we will start to see a continuation of this profit, but the next months will be more difficult.
•    We believe productivity will grow, wages will moderate (as the catch-up process is finalised), and profits can absorb rises in unit labour costs.