2024-02-16 12:45:02
Sluggish productivity in the euro zone, combined with rising wages, might delay the return of inflation to the 2% target, a senior European Central Bank official said on Friday.
“Productivity growth, still weak, or even negative recently, exacerbates the effects of the current strong growth in nominal wages on the unit labor costs of companies,” declared Isabel Schnabel, member of the board of directors of the BCE, in a speech in Florence.
Therefore, “this increases the risk that businesses will pass on higher wage costs to consumers, which might delay the return of inflation to our 2% target,” she added.
In this context, “monetary policy (of the ECB) must remain restrictive” and we must “not prematurely adjust” the level of rates, she declared.
Because before acting, the guardians of the euro will want to be “sure that inflation will return sustainably to (the) medium-term objective”.
This is to avoid having to “adopt a ‘stop and go’ policy” on rates, “similar to that of the 1970s”, according to Ms Schnabel.
The decline in productivity in the euro zone, falling behind the United States, is due to the “slowness of technological diffusion”, companies in the euro zone having “failed to take advantage of the revolution in technology information and communication (ICT),” she explained.
The representative of the ECB calls in particular for a strengthening of the competitiveness of the euro zone and welcomes the agreement concluded at the end of December between the Twenty-Seven on a relaxation of European budgetary rules, which must guarantee the recovery of public finances without compromising investments .
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