ECB’s Lagarde: We Will Not Be Weak on Inflation, Wage Negotiations Now a Key Variable

21 February 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde reiterated on Wednesday her determination to fight inflation and doubled down on the ECB’s data-dependent approach to monetary policy.

In an interview with Finnish public broadcaster Yle, Lagarde said the ECB was carefully monitoring developments in wage negotiations, though the central bank did not see a wage-price spiral in the euro area.

‘We will take the measures that are appropriate, we will sustain the course, as well as stay the course’ to return inflation to 2%, she said. The ECB had ‘very clearly communicated’ its intention to hike by 50bp in March, she noted, adding: ‘What comes after that, we will be data dependent, we will look at all numbers, inflation, obviously, labour cost projections, and we will determine what our monetary policy path will be after that.’

The Governing Council was ‘not going to be weak on our knees and we're not going to waver, we're going to do what it takes, whatever that is’, to bring inflation down, she said.

The ECB was ‘looking at wages and negotiated wages very, very closely, because it's a key component for us’, she said. It was ‘quite normal that we see at the moment inflation catch-up as the key theme of negotiations’, she said.

However, she said, ‘at this point in time, for the whole of the euro area, we do not see this spiralling of inflation [and] wages.’

‘Inflation has begun slowing down’, she said. ‘Whether you look at Finland, or whether you look at the whole of the euro area, headline inflation has begun to reduce and decline.’

Lagarde acknowledged that ‘differences between member states often happen, differences between governors often happen as well’ on the ECB’s Governing Council. She said that, despite this, ‘for the last three and a half years, we have always managed to find a common ground that brought a very large majority, if not a consensus sometimes together around a decision.’

On the growth outlook for 2023, she predicted that ‘all European countries should fare okay… not great, not very high numbers, but no recession.’

Still, she warned that ‘we are living in extremely uncertain times.’

‘A lot hangs in the balance’, she said. The Russian aggression in Ukraine, the development of the Chinese economy and the outcome of wage negotiations were three key sources of uncertainty for the ECB, she said.