ECB: PMIs Appear To Have Softened Makhlouf's Outlook

The weakness in Friday’s PMIs appear to have softened Central Bank of Ireland’s Makhlouf’s outlook today. He still advocates for some caution but is open-minded on the slope of the downward trajectory in rates vs pushing a “prudent and cautious approach” with no rush to achieve the ECB's target in Nov 18 remarks. 

• “Measures of economic activity have been volatile. Third quarter GDP was towards the top-end of the range in our September projections. Against this, the November PMI was weak, along with data on new orders. Weaker growth is a downside risk to inflation, and we will know more after the updated Eurosystem staff projections in December."
• Rates on a downward trajectory: “It is clear that policy remains restrictive and, shocks aside, rates are on a downward trajectory. Given the volatility and the data and the substantial uncertainty regarding economic policy in trade partners, I remain open-minded on slope of this downward trajectory. This is in line with our data-dependent approach to setting policy.”
• Increasingly confident of reaching 2% target but still some caution: “[O]n the always topical issue of monetary policy, recent data make me increasingly confident of reaching our 2% inflation target during 2025, but the stickiness of services inflation and elevated wage growth leave some room for caution.”
• “Services inflation has averaged around 4% this year in the euro area.  With goods inflation around its long-term average of 0.5-1%, I want to see services inflation closer to 3% in order to be more in-line with our target. In support of this, there are some signs of labour market loosening, which will help to ease upward wage pressures. Forward-looking surveys and wage trackers also point to a slowing of wage growth next year.”