ECB’s Lane Says One-Off Wage Rise No Sign of Sustained Inflation
(Bloomberg) -- A one-off shift in workers’ pay in response to recent price spikes wouldn’t be a sign of sustainably higher inflation, European Central Bank Chief Economist Philip Lane said.
“Differentiating between transitory and persistent shifts in the growth rate of wages” will play an important role in assessing the progress of underlying inflation, he said at a conference on Monday. Single shifts in the level of wages do “not imply a trend shift in the path of underlying inflation.”
Lane’s remarks suggest he will advocate for patience as the ECB waits for signs of persistently higher inflation to materialize. Price growth in the euro area is running at the fastest pace since 2008, propelled by energy and a number of statistical effects related to the pandemic that should fade next year.
Still, persistent supply bottlenecks have fueled concerns that price pressures could remain elevated for some time. At a separate event on Monday, Lane’s Dutch Governing Council colleague Klaas Knot struck a more cautious tone when he warned against underestimating inflation risks that could force the institution to tighten monetary policy.
“There is more in the inflation process we don’t understand than we do understand,” Knot said, adding that price pressures may turn out to be stronger than currently projected.
The central bank is preparing to unwind emergency monetary stimulus as economies in the 19-nation euro area turn a page on the coronavirus crisis. Most ECB officials have pointed to missing wage pressures when arguing that the current inflation spike is largely transitory.
Lane reiterated that view at an Institute of International Finance event on Monday, arguing that the price spikes won’t alter the ECB’s medium-term inflation outlook, which foresees an average rate of 1.5% in 2023 -- well below its aim of 2%.
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