ECB’s Lagarde: No Wage-Price Spiral for Now, Inflation Steadily Declining

8 October 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Sunday said that prices were decelerating steadily and that no wage-price spiral was currently visible.

In an interview with French weekly financial newspaper La Tribune also posted on the website of the ECB, Lagarde, who reiterated the now standard message that interest rates at present levels would help restore price stability, said, ‘Inflation persists, but it is abating and even steadily declining. That’s good news.’

A wage-price spiral was not presently apparent, ‘but we are monitoring it closely’, she said. Projections for wage growth through 2025 were ‘consistent with inflation rates returning to 2% over the coming years.’

Although the economy was weakening, an anticipated strengthening next year, the ongoing substantial drop in inflation and stably record-high employment all argued against pessimism, she said.

The ‘big question’ was whether companies would accept the hit to profit margins from wage increases in 2023 and 2024, she said. ECB forecasts assume ‘that they will reduce their margins a little in order to absorb part of the salary increases’, she said.

Energy prices were another ‘very important’ factor, she said. Society should plan on oil staying expensive and be motivated ‘to pursue the fight against climate change even more vigorously, and to shift towards an energy mix that is less dependent on fossil fuels and foreign suppliers', she said.

Lagarde assured that the ECB did not wish to induce recession, but conceded that getting control of inflation did involve ‘an adjustment between supply and demand, notably through reduced investment and consumption.’

This was required to, ‘above all, prevent a dangerous inflationary spiral’, she said. ‘We must avoid this at all costs. We want to get inflation back to 2%, and we will achieve that.’