Economy

ECB council member warns over impact of wage increases on inflation

Madis Muller says getting rate down to 2% could become ’more complicated’

The European Central Bank headquarters in Frankfurt. Quickening wage increases pose a key threat to the euro-area inflation outlook, according to European Central Bank Governing Council member Madis Muller. Photograph: Alex Kraus/Bloomberg

Tue Jun 20 2023 - 13:23

Quickening wage increases pose a key threat to the euro-area inflation outlook, according to European Central Bank Governing Council member Madis Muller.

“If wage rises — which have accelerated in the euro area — remain so fast, then maybe the decline in core inflation will be slower than currently forecast,” Mr Muller said..

That “could also mean that getting inflation firmly anchored to 2% over the medium term could also become more complicated,” Muller said. “That’s something we need to follow.”

While policymakers including Mr Muller are reluctant to discuss what may happen after another expected rate increase in July, others warn that hikes may still be needed come the following meeting, in September.

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They mostly fret about core inflation, which has edged lower but remains elevated, and don’t want to pause their historic monetary-tightening campaign prematurely, only to have to resume it down the line.

Last week, the ECB said in its latest round of economic forecasts that wage growth will remain well above its historical average, driven by inflation compensation, a tight labor market and increases in minimum wages. - Bloomberg

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