ECB to Lift Rates With Services Inflation, Wage Growth Still Strong

The stickiness of services inflation and the strength in wage growth remain a key worry for the European Central Bank, which is expected to raise interest rates further, Sebastian Vismara, financial economist at BNY Mellon Investment Management, writes in a note. He expects the ECB to raise interest rates by 25 basis points in September, bringing the deposit rate to 4.00%. “This will possibly be the last hike but a terminal rate of 4.25% also remains a possibility, given the ECB’s renewed focus on unit labor costs, a lagging measure that is prone to revisions to the downside, which makes them inherently hawkish,” he writes….