The President of the European Central Bank Christine Lagardeconfirmed on Monday that wages have begun to “rise” in the eurozone, although the increase “remains moderate” and lower than expected, but they expect negotiated wage increases strengthened over the rest of the year and remained above projections “due to tensions in labor markets, increases in minimum wages and some offsetting effects due to high inflation rates,” he said. explained before the Committee on Economic Affairs of the European Parliament, in which he has confirmed the next rate hike and preparations for the new anti-fragmentation instrument to control risk premiums.
The evolution of wages is reflected in the rise in longer-term inflation expectations, which the ECB experts have revised upwards significantly. According to the latest projections, inflation will soar to 6.8% this year, before falling to 3.5% in 2023 and 2.1% in 2024, which means that, at the end of the horizon, it will still be slightly above target. “It is perfectly legitimate for these increases (wages) but it is very important and it is our job as the European Central Bank to maintain price stability and the outlook for inflation at around 2% and not to expose ourselves to excess. that it goes far beyond this 2% “, he explained about the mandate of the entity.
Monetary normalization
Hence the battery of measures adopted by the Governing Council of the ECB at its last meeting on 9 June, to tighten monetary policy after a record inflation rate of 8.1% in May. This battery includes ending net debt purchases from July 1, raising interest rates by a quarter of a point at the July monthly meeting, and predictably a second, even higher rise – possibly a quarter of point – in September, although it will depend on the inflation outlook in the medium term.
“If the medium-term inflation outlook persists or deteriorates, a larger increase at our September meeting will be appropriate,” he said. The intention of the entity is to establish “a gradual but sustained trajectory” from September. “In line with our commitment to the 2% medium-term target, the pace of adjustment of our monetary policy will depend on the data received and how we assess the evolution of inflation in the medium term.” , he added.
Anti-fragmentation instrument
Lagarde also acknowledged that the pandemic has left “lasting vulnerabilities” in the eurozone economy that “are contributing to the uneven transmission” of monetary policy among eurozone countries and assured that they will do everything possible. possible for proper transmission because it is a necessary “precondition” for the ECB to be able to fulfill its price stability mandate. Hence the two decisions they made on June 15 during one extraordinary meeting of the governing council after the increase in risk premiums in countries such as Italy. First, to flexibly apply the repayment of public debt that matures in the portfolio of the Pandemic Emergency Program (PEPP). And, secondly, to accelerate the design of the new anti-fragmentation instrument with which to avoid large disparities in risk premiums.
“It’s tempting to ask me about differentials, forks, criteria, speeds or frames to apply, but I won’t answer them. I understand that this is a question that many have in mind, but the work is in progress “, he replied to questions from MEPs. “Suffice it to say that fragmentation will be addressed if this risk arises and will be done with the appropriate tools and the necessary flexibility. (The new instrument) will be effective, proportionate and in line with our mandate, “he said, adding that” anyone who doubts our determination will be making a big mistake. ”