ECB’s Vasle Sees Growing Risk That Inflation Will Stay Elevated

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The likelihood that elevated inflation will become entrenched is increasing, according to European Central Bank Governing Council member Bostjan Vasle. 

The Slovenian central bank chief said prices in his country are “basically following the same trend as inflation in the whole euro area,” caused mainly by soaring energy costs and supply shortages.

But he warned there’s a mounting risk that households will internalize higher prices and push them up more by demanding pay rises.

“What I expect is that prices will increase further, by the end of this year, and then slowly moderate in 2022,” Vasle said in an interview. “However, the risks that inflation will stay elevated for longer are growing, since one can’t exclude a shift in expectations and second-round effects on the labor market.”

Last week, the ECB struck a more cautious tone on inflation as it affirmed its policy stance before a larger discussion in December. President Christine Lagarde was reserved in her pushback against investor bets for interest-rate increases as soon as next year, reflecting the high uncertainty surrounding euro-area inflation.

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