Remarks of Officials

Wage growth remains relatively strong at the moment, but appears to show signs of a gradual slowdown. Corporate profits are continuing to absorb the impact of wage increases.

The increase in population added to the short-term pressure on shelter inflation. The breadth of price pressures in services was viewed as an upside risk to inflation. The risk had diminished that restrictive monetary policy would slow the economy, and there was a risk of keeping monetary policy more restrictive than needed.

Driven by continued strong wage growth, inflation in the services sector is more persistent than goods inflation. Even though Nagel supports a rate cut in June, it does not imply there will be a series of rate cuts thereafter.

The persistent component of inflation dynamics is trending down because of the implementation of tight monetary policy. The committee needs to maintain a restrictive monetary policy stance.

The largest remaining threat stems from inflation in the services sector, mainly driven by wages. But there is a clear slowdown in the dynamics. If the economy develops as anticipated, the European Central Bank will cut interest rates in June.

The European Central Bank may cut interest rates by more than 100 basis points in 2024. Centeno is in favor of a meeting-by-meeting approach to set monetary policy. Even if the ECB makes four cuts by 25 basis points each time, the euro area's policy rate will still be higher than the neutral rate.

The economy will recover gradually this year as falling inflation and higher wages support real incomes and consumer spending. Labour productivity is expected to recover in the future as labour hoarding unwinds and profit margins moderate. The degree of further disinflation depends on the interplay of labour costs and profit margins.

Inflation is expected to fall further this year, but at a slower pace. Wage growth has been strong, but it has recently begun to slow. Our future decisions will ensure that our policy rates will stay sufficiently restrictive for as long as necessary.

The European Central Bank is considering a rate cut, simultaneously with a projected start of recovery in domestic demand and a record-low unemployment rate. Without prejudging the objective of bringing inflation down to the 2% target, the ECB needs to avoid policies that could undermine the economic recovery.

Overall economic activity expanded slightly since late February. Labor demand and supply would remain relatively stable, with modest further job gains and continued moderation of wage growth back to pre-pandemic levels. Price increases were modest, on average, and some Districts noted moderate increases in energy prices.