ECB’s Rehn: ‘At Least for the Time Being, We Cannot Speak of a Price-Wage Spiral’
22 July 2022
By David Barwick – FRANKFURT (Econostream) – Euro area wage developments are not showing significant signs of second round effects so far, European Central Bank Governing Council member Olli Rehn said on Friday.
In a blog post on the website of the Bank of Finland, which he heads, Rehn said that ‘[r]ecently, nominal wages in the euro area have understandably risen somewhat, but clearly less than in the United States, and in the euro area, at least for the time being, we cannot speak of a price-wage spiral.’
Thursday’s Governing Council meeting opted for a larger-than-expected rate hike on the basis of surprisingly high inflation and the agreement on an anti-fragmentation instrument, he said. The ECB would now ‘continue the normalisation of interest rates from meeting to meeting’, and ‘decisions will continue to depend on information about the economy’, he said.
The Transmission Protection Instrument ‘can be introduced if unwarranted or uncontrolled market development threatens to seriously change the effect of monetary policy in different countries of the euro area’, he said.
The volume of purchases is unlimited ex ante and depends on the extent of interference with monetary policy transmission, he said.
The TPI can be situated between pandemic emergency purchase programme (PEPP) reinvestments and outright monetary transactions (OMT), he said. The latter is the tool of choice ‘if the problems of a euro country are so deep that it threatens to lose its debt sustainability and a strict economic policy program is required to correct the problems’ he explained.