Lagarde Says ECB Doesn’t Need Services Inflation at 2%

(Bloomberg) -- The European Central Bank doesn’t need services inflation — a key focus as policymakers determine how much to lower interest rates — to slow to the 2% target, according to President Christine Lagarde.

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“Obviously, we don’t need to have services at 2% because manufacturing goods are below 2% and at the end of the day it’s going to be a balance between goods and services,” she told a panel Tuesday in Sintra, Portugal.

“But we have to look really what is behind it,” she said. “And what’s behind it is a lot of wages. Services has a very high component of labor. Wages also suffer from the lag impact of the labor system that we have in Europe.”

While euro-zone inflation moderated a touch in June to 2.5%, according to data published earlier Tuesday, services held steady at 4.1%. Such price pressures are making many ECB officials wary to promise more rate cuts, following their initial reduction last month.

• Read more: Euro-Zone Inflation Slows as Lagarde Plays for Time on Rates

--With assistance from Marilen Martin.

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