ECB’s de Guindos: Wages the Fundamental Risk to Watch Now

17 May 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Friday said that inflation had been behaving positively but that it was still necessary to monitor risks, especially related to wages.

Speaking at the Banking Sector Industry Meeting in Madrid, de Guindos said, ‘The fundamental risk that we are currently analysing is the evolution of wages. There has been a slowdown in the nominal evolution of wages of around 5% to 4%, with very low productivity, which leads to an increase in unit labour costs.’

Inflation developments had been ‘very positive’ since October 2022, he said.

‘Headline inflation is at 2.4% and core inflation, below 3%’, he said. ‘We believe that in the coming months inflation will fluctuate around these values, but that in the medium-term in 2025, we will stably converge to our price stability objective of 2%.’

The ECB had been very transparent in saying that monetary policy decisions in June and afterwards would be data-dependent, he said.

Referring to the Financial Stability Review released Thursday by the ECB, de Guindos said that the fundamental message was that macroeconomic risks had diminished, but that this didn’t prevent future threats to financial stability.

‘There has been an improvement from very low levels of economic growth, good performance of the labour market, and that determines that macroeconomic risks that were very important for us six months ago, are currently playing a smaller role’, he said.

He warned that this year’s worldwide electoral cycle could lead to fragmentation, as there were economies ‘imposing protective measures that in some ways are going to produce a fragmentation of the global environment, which sooner or later would end up affecting both inflation and the growth in the world economy.’