(Bloomberg) -- The European Central Bank Governing Council member Martins Kazaks said the danger of persistent services inflation currently outweighs his concerns over the economy.
“In my opinion, the risk of service price inflation is still more significant at the moment, but as we move forward step by step, we will see how the situation develops,” the Latvian central banker told Leta newspaper in an interview published Monday. “Undoubtedly, the direction of rates is downward. How quickly the rate cut will happen depends on how the economy develops further.”
Euro-area consumer-price growth slowed to just 2.2% last month and is expected to continue its deceleration in September, though services inflation is stuck around 4%. At the same time, output is failing to rebound, and the ECB lowered its forecasts for 2024-2026 when it cut rates earlier this month.
Kazaks said the ECB must “be careful not to be surprised” on prices pressures in the services sector, but added that “another factor works in the opposite direction, and that is the weakness of the economy.”
“The economy is weak, and if rates stay too high for too long, it could cause the economy to slow down unnecessarily and unemployment to rise,” Kazaks said.
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