Prospect of ECB rate cut in September slips as inflation steadies
The European Central Bank (ECB) policy setters calibrate interest rate levels with the aim of maintaining inflation at close to 2pc over time.
Rising food prices in Ireland and elsewhere are complicating perceptions of inflation at household level, but the data confirms a fading of price spikes that kicked off as economies reopened at the end of the Covid pandemic.
Friday's data showed a measure of core inflation, that strips out volatile energy and food prices, increased 2.3pc on the year. Services inflation was the weakest since early 2022.
ECB president Christine Lagarde left interest rates unchanged last week and investors have begun to pare back bets of a further cut in September.
Central Bank of Ireland governor Gabriel Makhlouf wrote a commentary on the interest rate dynamics this week in his online blog.
He pointed to the most recent ECB staff forecasts in June that had headline inflation in the euro area averaging 2pc this year, falling to 1.6pc in 2026 and 2pc in 2027 respectively.
While that is down to lower energy costs and a weaker dollar that is now already regaining strength, the Central Bank Governor said the numbers mean rate setters are in no rush to act.
'We have reached a point in our easing cycle where we can wait and see whether the data and evidence indicates the need for a change in our monetary policy stance,' he wrote.
The euro hit a recent high of over $1.18 in July but has since fallen back to around $1.14 as the dollar headed for its strongest weekly performance in almost three years in the wake of US president Donald Trump's imposition of higher tariffs on EU imports and goods from dozens of other trade partners without triggering tit-for-tat retaliation.
While that lifted the dollar, evidence for June shows US inflation picking up as tariffs lift prices for imported goods, supporting views that price pressures will pick up in the second half of the year and delay the Federal Reserve from resuming cutting interest rates until at least October.
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