ECB ‘Would Not Stand Idly By’ if Profits and Wages Increased, Lagarde Says
7 July 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – The European Central Bank would have to act if firms don’t reduce their margins to absorb increased wages, ECB President Christine Lagarde said on Friday.
In an interview with French daily newspaper La Provence, she said the ECB still had work to do in order bring inflation back to its 2% target.
‘A simultaneous increase in both [profits and wages] would fuel inflation risks, and we would not stand idly by in the face of such risks’, she said. In the current context, it was ‘important to know whether firms are going to reduce their margins a little to meet their employees’ expectations of higher wages’, she said, noting that this ‘normally happened during previous high inflation episodes’.
In the Eurozone, inflation was ‘still higher than our medium-term target of 2% and according to our staff projections, is set to remain so in 2024 and 2025’ she said, concluding that the ECB ‘therefore still have work to do to bring it back down and reach our target.’
On the whole, inflation had ‘started to decline’, which was ‘due in particular to the fall in commodity and energy prices, and I think also to the initial impact of our monetary policy decisions on prices’, she said.