ECB Brief: de Guindos Sees Potential for Even Higher 2021 HICP, Stronger Wage Developments

17 September 2021

By David Barwick – FRANKFURT (Econostream) – As affirmed in this space yesterday, European Central Bank Vice President Luis de Guindos has been on a ‘slow but steady trend’ in the direction of a less dovish policy standpoint. His latest interview, published Friday in Dutch daily Het Financieele Dagblad, though tending to skirt the most pressing policy questions, seems to fit this cautious evolution:

  • Cites the usual reasons for the current inflation spike to prove temporary, but suggested that supply constraints could lead to yet higher-than-anticipated HICP this year.
  • Although higher prices have so far led to ‘few wage rises’, wage negotiations next quarter could change this, ‘and we will be vigilant on these possible developments.’
  • Observed that interest rates may not remain low for long, arguing that relevant structural forces ‘may be evolving’ and the long-term consequences of the pandemic could also set the stage for higher rates: ‘I think that globalisation is starting to decline, and that supply chains are no longer as widely dispersed as they once were.’
  • Denies danger of fiscal dominance: ‘It must be crystal clear that our primary and ultimate aim is price stability, and so our focus is on the path of inflation. Our decisions must be felt throughout the entire euro area, and therefore we have to prevent market fragmentation.
  • Fiscal dominance fears are also mitigated by all the new government debt, he argued, citing ECB estimates showing that ‘in the short and medium term we will not reach the limits that we have set for ourselves.’