The ECB cited slowing economic growth and decreasing inflation as reasons for reducing its deposit rate by 25 basis points to 3.25%. Concerns about high domestic inflation brought on by rising wages and unstable energy prices are voiced by policymakers. Additional rate reductions are expected, although no promises were given
Because salaries are still growing at a rapid rate, domestic inflation is still high. The ECB stated, “At the same time, labor cost pressures are expected to continue gradually decreasing, with profits partially buffering their impact on inflation.”
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On Thursday, the European Central Bank lowered interest rates for the third time this year, citing weak economic growth, some weakening in the otherwise stable labor market, and a reduction in pressure on consumer prices.
The tight labor market, persistent pay demands from unions, unstable energy prices, and rapidly growing service prices all point to the possibility that domestic inflation may be high for some time to come.