The president of the European Central Bank (ECB), Christine Lagarde, warned today that inflation in the Eurozone remains strong while wage growth is at “historically high” levels.
Lagarde mainly referred to core inflation, which excludes volatile energy and food prices.
Year-on-year inflation was 4.3% annually last month in countries that use the euro, nine tenths less than in August, which represented the lowest level since October 2021, according to data published by the Eurostat statistics institute.
Meanwhile, the underlying or core index stood at 4.5%, compared to 5.3% in August.
“Core inflation remains at high levels, reflecting the fact that the minor impact of the past increase in production costs is counterbalanced by the growth in labor costs,” Lagarde said today at the joint meeting held by the Monetary Fund. International (IMF) and the World Bank in the Moroccan city of Marrakech, in statements cited by the Bloomberg news agency.
In this framework, he indicated that “the compensation that employees seek to compensate for the loss in purchasing power and low unemployment results in historically high wage growth.”
“Wage growth is expected to moderate gradually, although it remains high on the horizon, given the rise in the lowest salaries,” he said.
In any case, he reiterated the ECB’s forecast that projects that inflation will continue to moderate and reach the goal of 2% annually in 2025.
Along the same lines as Lagarde, the member of the Governing Council of the ECB as president of the Bundesbank, Joachim Nagel, pointed out today that price pressures remain “very high”, and that “upward risks are still present.”
“It is too early to celebrate the victory,” he said, stating that the bank will keep rates “high enough for as long as necessary” because “the beast of inflation needs to be tamed.”
To confront inflation, the European monetary entity carried out 10 upward revisions of interest rates since July of last year, which took them to the highest level since the creation of the euro in 1999.
The deposit facility, refinancing and marginal lending rates are currently at 4%, 4.50% and 4.75%, respectively.
At the last meeting in September, new rate increases in the coming months were not ruled out, although, from the market, it is believed that the hike cycle has already ended.
For the former managing director of the IMF, it will be key to analyze the impact of rate increases on the real economy, before deciding what monetary decision to make in the next meetings.
Regarding economic activity, Lagarde indicated that there are downward risks “including a weakening of demand, due to a stronger transmission than anticipated in monetary policy or due to a worsening of the international economic context.”
On the other hand, growth “could be stronger than projected if the strong labor market, wage growth and reduced uncertainty drive confidence among consumers and businesses, prompting them to spend more.”
According to the latest ECB forecasts, the Eurozone would remain practically stagnant with growth of 0.7% this year, and then rise 1% in 2024 and 1.5% in 2025.
In this context, the member of the Council and head of the Central Bank of Malta, Edward Scicluna, highlighted that consumer spending remains solid in Europe despite complications in the industry, the weakening of exports and high financing costs. .
“Despite all this, people, after the coronavirus, still want to consume. Everyone talks about a recession, but, the point is, people don’t seem to want it,” she concluded.
Source: Ambito
