Lagarde warns of recovery in eurozone wages

European Central Bank chief Christine Lagarde confirmed on Monday that wages are starting to “rise” in the euro area, although the increase was “moderate” and lower than expected. wage increases discussion “It will strengthen and stay above forecasts for the remainder of the year,” he said, “due to some compensation effects from labor market tensions, increases in minimum wages and higher inflation rates.” european parliament economic affairs committee which confirmed next rate hike and preparations new anti-fragmentation tool controlling risk premiums.

The evolution in wages is reflected in the rise in long-term inflation expectations, which ECB experts have revised significantly upwards. According to the latest forecasts, inflation will rise to 6.8% this year before falling to 3.5% in 2023 and 2.1% in 2024, meaning it will still be slightly above target at the end of the horizon. “It is perfectly legitimate to have these (salary) increases, but this is very important and it is our duty as the European Central Bank to maintain price stability and an inflation perspective of around 2% and not subject it to an oversupply on our part. this is far beyond 2%”, explained the authority of the institution.

monetary normalization

Hence the series of measures taken by the ECB’s governing council at its last meeting on 9 June to tighten monetary policy after a record inflation rate of 8.1% in May. That battery includes ending net borrowings as of July 1, raising interest rates by a quarter point at the monthly meeting in July, and possibly a second, or even higher—probably a quarter-point increase in September. on the medium-term inflation outlook

If the medium-term inflation outlook persists or deteriorates, a larger increase would be appropriate at our September meeting. It will depend on the data and how we evaluate the evolution of inflation over the medium term.”

anti-fragmentation tool

Lagarde also acknowledged that the pandemic has left “persistent vulnerabilities” in the eurozone economy, which “contribute to the erratic transmission” of monetary policy among eurozone countries, and assured that they will do everything possible to do so. There is sufficient transfer as it is a necessary “prerequisite” for the ECB to fulfill its price stability mandate. extraordinary meeting of the board of directors After the rise in risk premiums in countries like Italy. First, flexibly implement the repayment of public debt falling into the Pandemic Emergency Program (PEPP) portfolio. And second, to speed up the design of the new anti-fragmentation tool to avoid large disparities in initial risks.

“I know it’s tempting to ask me about differentials, forks, benchmarks, speeds or frameworks that will be applied to me, but I’m not going to answer them. As I understand it, it is a question on many people’s minds, but the studies are ongoing.” “Suffice it to say that if this risk arises, fragmentation will be addressed and it will be done with the appropriate tools and with the necessary flexibility. (The new tool) will be effective, proportionate and in line with our mandate,” he said, warning that “anyone who doubts our resolve will make a grave mistake.”

Source: Informacion

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