2023-06-27 08:54:15
FRANKFURT (Archyde.com) – Inflation in the euro zone has entered a new phase that is likely to last for some time, forcing the European Central Bank (ECB) to continue raising its interest rates, maintain a policy restrictive and to avoid declaring an end to rate hikes, the institution’s president said on Tuesday.
At each of its monetary policy meetings since July 2022, the ECB has decided to raise its key rates, bringing its rate on its deposit facility to 3.5%. It has already pledged to continue on this path in July in the hope of curbing inflation.
“It is unlikely that in the near future the central bank will be able to say with confidence that the peak in rates has been reached,” said Christine Lagarde in her opening speech at the annual ECB forum. in Sintra, Portugal.
“That is why our policy must be decided meeting by meeting and must remain dependent on data,” she added.
Relatively rapid wage growth and the resilience of the labor market are likely to add to inflationary pressures.
As the euro zone entered a technical recession at the start of the year, companies are keeping their employees, an unexpected trend that is fueling wage growth.
“This disconnection partly reflects the maintenance of the workforce by companies in a context of labor shortage,” said Christine Lagarde. “This is weighing on productivity growth and the urge of firms to retain labor may not go away quickly.”
Another difficulty for the ECB is that much of the job growth comes from sectors where productivity growth is historically weak.
“All of this means that we will face several years of rising nominal wages, with pressures on unit labor costs exacerbated by moderate productivity growth,” continued the ECB President.
These developments will lead the bank to make a clear commitment to keeping rates high for an extended period.
(Francesco Canepa and Balazs Koranyi, French version Laetitia Volga, edited by Kate Entringer)
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