Despite a modest increase of only 0.1 percent in prices in October, services price inflation hit its highest level in over six months at 3.4 percent. The metric is closely watched by the European Central Bank (ECB) because of its close link to wage growth, which accelerated to around 4 percent in the second quarter.
Persistent services inflation can eventually feed through the rest of the economy, and could drive prices higher across the basket of goods being measured. However, ECB President Christine Lagarde repeated on Thursday that she expects wage growth to slow again in the coming months.
The ECB held its key interest rate unchanged at 2 percent on Thursday, with the Bank emphasizing that inflation was in a “good place” and that it would continue with its wait-and- see approach.
While the latest inflation reading is only a touch above the Bank’s 2-percent target, the persistence of inflation in the services sector will likely make the ECB reluctant to lower interest rates any further for the foreseeable future.