ECB’s Centeno: Inflation Bumpiness a Non-Argument; Can't Take Resilience of Job Markets for Granted

18 April 2024

By David Barwick – WASHINGTON (Econostream) – European Central Bank Governing Council member Mário Centeno on Thursday dismissed arguments based on the idea of ‘bumpy’ inflation and warned against taking for granted the resilience of Europe’s labour markets.

In an event organised by the Reinventing Bretton Woods Committee on the margins of the spring meetings of the International Monetary Fund and World Bank, Centeno, who heads Banco de Portugal, observed that inflation was projected ‘to be below 2% in a few months’ time.’

‘The road is a little bit bumpy’, he said, but anyone preoccupied with this was probably ‘someone that never looked at an inflation time series.’

‘There is no other time series more bumpier than inflation’, he explained. ‘It is a backward-looking indicator.’

European monetary policy has been successful, he affirmed, citing the latest wage growth of 3.2% based on signed agreements.

‘When those agreements were signed, our forecast for inflation was higher than 3.2%’, he said. ‘So those agreements were signed with losses in real terms.’

Europe’s success however came at a cost, he said. Inflation had exacted a ‘very high’ price.

‘We are having a soft landing when maybe the US is having a fast recovery’, he said. ‘I don’t even know if they landed.’

Even with the funding of many projects via the Next Generation EU, a facility ‘of huge value for Europe in the future’ whose previous absence had been a shortcoming vis-à-vis the US, private investment in Europe was falling, he said.

This portended nothing positive, he said.

Centeno rejected the idea of ECB dependence on the US Federal Reserve. Authorities ‘need to focus on mandates and our mandate is very clear’, he said.

The ‘mysterious last mile’ of the effort to get inflation under control was a mathematical inevitability, he suggested, ‘because there is an asymptote.’

Had inflation continued to decline at the previous rate, ‘we would be having deflation today’, he argued.

According to Centeno, ‘Europe is living on a dividend out of the labour market. And like all dividends, we need to take good care of it.’

It was critical not to ‘destroy the successes’ of the labour market, he said.

‘I don’t think that this will last much longer if really the economy does not pick up’, he warned. ‘Firms are not charities.’

Centeno said he did not believe in the concept of labour hoarding.