ECB’s Wunsch: ‘We Still Need to See Good News on Wages’

15 December 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Pierre Wunsch on Friday said that wage developments remained an open question, despite other inflation indicators being on the right path.

In an interview with the FT, Wunsch, who heads the National Bank of Belgium, said, ‘We are moving in the right direction on inflation, and I am much more optimistic than a few months ago, but we still need to see good news on wages.’

Good news would mean a slowdown in wages, he suggested. ‘It is going in the right direction for some indicators, but wage increases are still too high and there are no clear signs that this is slowing down fast enough’, he said.

There was evidence that companies were compressing their profit margins to absorb rising wage costs, he said.

If wages did not yield, another rise in borrowing costs was not ruled out, he said, noting, however that ‘the probability of a hike has gone down quite a lot.’

It was unlikely that the ECB would start cutting interest rates in March, he said, as there would be wage negotiations in the first months of 2024 and the ‘data will not be ready to interpret until the second quarter.’

For this reason, investor projections of a first cut in March were ‘too optimistic’, he said.