Wages Will Continue to Support Core Inflation in Years to Come, ECB’s Lagarde Says

14 April 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde said on Friday that historically high wage growth in the Eurozone would support core inflation in the coming years.

Speaking at the International Monetary and Financial Committee during the IMF Spring Meetings in Washington, D.C., Lagarde reiterated the ECB’s data-dependent, meeting-by-meeting approach to monetary policy, giving no hints about the nature of the central bank’s next policy move in May.

‘We expect euro area inflation to continue to fall, as lagged price pressures fade out and tighter monetary policy increasingly dampens demand’, she said. ‘However, historically high wage growth, related to tight labour markets and compensation for high inflation, will support core inflation over the projection horizon, as it gradually returns to rates around our target.’

This outlook was ‘surrounded by considerable uncertainty, with both upside and downside risks’, she cautioned.

She said that ‘inflation is projected to remain too high for too long’ in the Eurozone. ‘The elevated level of uncertainty reinforces the importance of a data-dependant approach to our policy rate decisions’, she said.

She repeated the ECB’s guidance that the forthcoming decisions would be determined be determined ‘by our assessment of the inflation outlook […], the dynamics of underlying inflation, and the strength of monetary policy transmission.’

The ECB stood ‘ready to respond as necessary to preserve price stability and financial stability in the euro area’, she said.

Risks to the euro area growth outlook were ‘tilted to the downside’, she said. ‘Persistently elevated financial market tensions could tighten broader credit conditions more strongly than expected and dampen confidence’, she warned, whilst the Russian invasion of Ukraine ‘could again push up the costs of energy and food.’