Corfu, Greece – The European Central Bank is expected to announce a rate cut despite recent data showing stubbornly high services and wage inflation. While headline inflation in the eurozone rose slightly more than expected to 2.6%, core inflation, which excludes certain volatile components, also missed forecasts by rising to 2.9%. Services inflation, a measure of domestic price pressures, increased to 4.1%, presenting a concern for ECB policymakers.

Nora Szentivanyi, global economist at JPMorgan, expressed the view that a slight easing of financial conditions might be wise due to ongoing consumer struggles despite a pick-up in economic growth. However, she noted that services inflation remains high at around 5% annually, posing challenges, along with sticky wage inflation.

In light of the pending ECB announcement, European stocks saw a rise, with the Stoxx 600 index up 0.64% near midday in London. The euro also nudged higher against the British pound and U.S. dollar, though it has faced challenges against these currencies throughout the year due to differing interest rate expectations.

Former ECB Vice President Vitor Constâncio believes that the central bank should proceed cautiously despite recent inflation upticks. He suggested that multiple rate cuts may be justified until the end of the year, citing decelerating wages and weaker economic conditions compared to the United States.

Meanwhile, German factory orders data fell below expectations ahead of the ECB decision, signaling potential challenges in the eurozone’s largest economy. Despite this, the ECB is anticipated to cut rates in response to reassuring inflation trends.

Economist Shaan Raithatha highlighted that the ECB is likely to proceed with interest rate cuts, signaling multiple reductions throughout 2024. These potential actions come amid concerns over inflation and economic stability in the Eurozone.

As the ECB faces decisions on rate cuts, former ECB President Jean-Claude Trichet emphasized a need for caution, considering both positive and negative economic indicators. Trichet suggested that while a rate cut is likely in June, additional reductions throughout the year may be limited to ensure stability.

Schroders senior economist Azad Zangana echoed the sentiment of an expected rate cut by the ECB, projecting a total of three cuts in the year, with alternate meetings targeted for follow-up decisions. Such moves would align with expectations and forecasts in the economic landscape.