ECB de Guindos: What worries me is trend in service prices

ECB Vice President Luis de Guindos assured yesterday that “There is no doubt headline inflation will continue to ease”. However, he added a note of caution, “But there are more doubts about underlying inflation.”

De Guindos expressed particular concern about the inflation trend in service prices, a sector showing increased momentum due to rising demand and accelerating salary increases. “What worries me the most in the underlying inflation trend is the trend in service prices,” he revealed. “Momentum in services… is rising. There’s demand and that’s because salary increases are accelerating.”

When discussing future interest rate hikes, de Guindos stated, “There could be more interest rate hikes, but their size will depend on upcoming data and the effect tighter credit will have on economic activity.”

Market expectations lean towards a 25bps increase at the June meeting, with a potential additional hike by summer’s end, followed by rate cuts in early next year. However, de Guindos urged caution in predicting these outcomes. “Don’t believe anybody who tells you what the terminal rate is going to be,” he said. “I don’t feel comfortable or uncomfortable but markets can be wrong about this.”