2024-02-16 16:22:07
Weak productivity in the eurozone, combined with rising wages, could slow the return of inflation to the set 2 percent target, a senior representative of the European Central Bank (ECB) said today, quoted by AFP and BTA.
“Productivity growth, which has remained weak or even negative recently, is exacerbating the impact of the current strong growth in nominal wages on unit labor costs,” Isabelle Schnabel, a member of the ECB’s Executive Board, said in a speech in Florence.
Therefore, “this increases the risk that companies will pass on higher wage costs to consumers, which could delay the return of inflation to the 2 percent target,” she added.
Coupled with weak productivity, rising wages continue to raise unit labor costs and thus prices. This raises the risk of a spiral effect that monetary policymakers fear.
In this context, “the ECB’s monetary policy should remain restrictive” and interest rates should not “be adjusted prematurely”, she said.
Before acting, the ECB wants to be “confident that inflation will return permanently to its medium-term target”. “A stop-and-go interest rate policy similar to what happened in the 1970s should be avoided,” according to Isabelle Schnabel.
She welcomed the end-of-December agreement between the 27 member states to ease European budget rules, which should ensure the recovery of public finances without compromising investment.