ECB’s Lane: Wages Still Boosting Inflation; Will Be Long Time Before We Know if 2024 Wage Growth Slower

3 October 2023

By David Barwick – VILNIUS (Econostream) – European Central Bank Executive Board member Philip Lane on Tuesday said that wage growth was continuing to contribute to euro area price pressures and that it would be well into next year before it would be known whether the slowdown of wages envisaged by ECB projections had materialised.

In a speech at a conference of the Bank of Lithuania, Lane said, ‘We are not at the inflation target yet, and therefore there is still work to be done in terms of bringing inflation down.’

Core inflation ‘has been coming down for a while now, but these levels are still relatively high’, he said.

‘[T]here remains upward pressure coming from wages’, he said. Current wage growth on the order of 5.5% ‘is not consistent with 2% inflation. In order to have price stability, we need to see wage increases come in lower than that. … so we still have two more years of fairly large wage increases, but every year less than the year before. And this is crucial…’

It would only be around the Easter holidays at the very end of next March that 2024 wage developments could be properly assessed, he said. ‘So it’s going to be a long time until we know whether that crucial assumption that wages will grow more slowly next year … is going to hold up or not.’

A lot of monetary tightening was ‘still in the pipeline’, he said. ‘So, even though you might say, “You’ve done a lot, where’s the evidence?”, there’s a lot more will be showing up in the data in the coming months.’

Lane reiterated the ECB’s view that interest rates were at levels that, if maintained long enough, would contribute significantly to the restoration of price stability.

He emphasised the ECB’s data-driven approach to setting policy, the first pillar of which was the inflation outlook.