European Central Bank hawkish committee members: Service sector inflation more concerning than economic slowdown.

Martins Kazaks, a member of the hawkish faction of the European Central Bank's Governing Council, said on Monday that the current persistent trend of inflation in the services sector poses a greater risk than his concerns about the economic slowdown in the Eurozone. Kazaks' latest views are largely in line with those of ECB President Lagarde and others, namely that while the ECB has cut interest rates twice, future policy direction will depend on inflation and other data, rather than following a market-driven aggressive easing path. "In my view, the risk of inflation in service prices remains greater at the moment, but as we move forward, we will have a clearer picture of how inflation is evolving," said the ECB Governing Council member and Governor of the Latvian central bank in an interview on Monday. "There is no doubt that the direction of interest rates is downward. However, the pace of rate cuts will depend on the speed of further economic development." Last month, the Eurozone's consumer price growth rate (i.e., CPI growth) slowed to 2.2%, and is expected to continue slowing in September, despite the Eurozone's services sector inflation rate hovering around a high level of around 4%. At the same time, the Eurozone's economic output failed to rebound as expected, and the ECB lowered its growth forecasts for 2024-2026 earlier this month when announcing the interest rate cut. The ECB downgraded its economic growth forecasts until 2026, while inflation expectations remained broadly unchanged from previous forecasts. Kazaks, who has a hawkish stance within the ECB Governing Council, said in the interview that the ECB must "be very cautious and not be surprised by the price pressures in the services sector," but added that "the role of another factor is in the opposite direction, that is the softening trend in the economy," although its risk level is lower than the stubborn services sector inflation. "Economic growth is weak, so if interest rates are kept high for too long, it may lead to an unnecessary slowdown in the economy, along with an increase in unemployment," Kazaks said. When the ECB announced the interest rate cut in September, it did not give any clues about when the next rate cut might occur or the potential size of the cut. Lagarde and other ECB Governing Council members are waiting for data on the extent of the Eurozone's economic deterioration and how this will change the inflation trend. Earlier this month, the ECB cut rates for the second time this year. The ECB lowered the deposit facility rate by 25 basis points to 3.5%, the main refinancing rate by 60 basis points to 3.65%, and the marginal lending rate by 60 basis points to 3.9%. At the same time, the ECB reiterated that it would not make specific commitments on interest rates. Lagarde only said that the downward trajectory of rates is "quite clear." Joachim Nagel, a member of the ECB Governing Council and President of the German Bundesbank, who also has a hawkish stance, recently stated that the ECB has made good progress in reducing inflation, but patience is still needed to fully achieve the 2% target. Nagel said in a recent interview, "We must now demonstrate policy endurance. If we can do this, we will soon reach the finish line." Nagel also said that the future path of interest rates is open, but borrowing costs "certainly won't rise as rapidly and sharply as they did before." David Powell, a senior economist in the Eurozone, said, "The ECB Governing Council may resist pressure to cut rates again in October and wait until December for more data on price pressures before making a decision."