ECB’s Schnabel: Sticky services inflation persists, wage growth expected to ease

In a speech today, ECB Executive Board member Isabel Schnabel noted the ongoing challenge of “sticky” services inflation, which continues to keep headline inflation elevated. She highlighted that price pressures within the services sector are “broad-based and global,” and that the momentum remains high, well above levels that would be consistent with price stability. This persistent inflation in services is a key concern for the ECB’s outlook.

However, there is some optimism regarding easing wage pressures. Schnabel pointed to expectations that wage growth will slow as the effects of past price shocks begin to fade. Additionally, firms are projecting moderation in selling price increases, as “profit margins buffer higher wages”. She also noted that while demand for services has remained resilient, there are signs it is beginning to soften.

Schnabel also addressed the risks posed by geopolitical uncertainty, stating that it continues to be a significant factor influencing inflationary pressures. She cautioned that inflation perceptions remain high, which makes inflation expectations more “fragile to new shocks.”

Full presentation of ECB’s Schbabel here.