ECB’s Wunsch: ‘At Some Point, We Are Going to Have to Bet on Where Inflation’s Going’

8 February 2024

By David Barwick – BRUSSELS (Econostream) – European Central Bank Governing Council member Pierre Wunsch on Thursday said that euro area wage growth was not compatible with the ECB’s price stability target, but that monetary authorities were unlikely to have a perfectly clear picture when the time came to consider a cut.

Speaking at an event organised by the think tank Bruegel, Wunsch, who heads the National Bank of Belgium, said, ‘We would already be talking about reducing rates if it were not for wages. And I would be completely fine with it.’

‘But we have a problem: we have still wages running at a level which is not compatible with 2%’, he continued.

The deceleration of wage growth and the use of corporate profit margins to cushion the blow from higher costs, both of which underlay the ECB’s macroeconomic projections, he reminded, were only somewhat visible, he said.

This accounted for the desire to wait for more information, he said. However, the ECB ‘won’t get full comfort within a reasonable period’, he said.

‘So, I think there is some value to waiting to get some more data on wages, but at some point, we are going to have to bet on where inflation’s going’, he said. 'We won’t have full comfort before we … start cutting rates. So, I’m on the side of those that believe there is some value to waiting. But again, we won’t get full comfort.’