The wage hike is unlikely to worsen the price hike next year, the European Central Bank president said on Monday.
Kristine Lagarde also insisted that the ECB will not raise interest rates in 2022, despite market expectations, Frankfurt may act sooner to counter higher-than-expected inflation. She said even hinting at a hike “would hurt the economy.”
“It’s just not in the cards,” she told MEPs in Brussels via video link on Monday morning. “If we were to take tightening action now, it could do a lot more harm than good in the face of soaring inflation.
“Merely hinting at a short-term tightening would actually hurt the economy and start to have effects at a time when inflation starts to drop, so it’s best to feed now and insure that we can offer these favorable financing terms in order to support the recovery.
She said she would not “venture” into the forecast for 2023, but insisted that a rate hike would not take place next year.
His comments come after prices rose more than 4% in the eurozone and more than 5% in Ireland last month, with job site Indeed claiming on Monday that shortages in the retail and in the hospitality industry could lead to higher wage demands next year.
In a video debate with MPs on Monday, Ms Lagarde said the main reasons for the price spike were rising energy costs, supply shortages caused by a release of pent-up pandemic demand and a temporary increase in German VAT which should disappear in January. .
She told MEPs in the European Parliament’s Economic Affairs Committee that while “inflation could stay higher longer than expected” there was “no evidence” that it would translate into higher wages and even higher prices.
ECB data shows wage growth of 1.7% in the second quarter, up from 1.4% in the first, largely due to a German Covid payment to workers.
The ECB expects wages to increase “a little more than this year” in 2022 as they resume post-pandemic baton.
However, Ms Lagarde said there were enough workers to fill the available jobs, despite labor shortages in retail and hospitality.
“We believe that there is enough slack in the economy, in terms of labor availability, not to have significantly higher wage increases in the future that could potentially lead to this. second round effect, ”she said.
She said a rise in house prices was not evident in the eurozone, although Ireland and the Netherlands were an “example”.
The costs are driven by regulatory requirements and more cautious bank lending, as well as a supply crunch, insisted Lagarde, which she said was a task for governments.
“What we are seeing are the banks taking a closer look at the risks,” she told MPs.
“There is a supply issue and in a number of countries these supply issues need to be addressed and need to be addressed head-on by the tax authorities.”
The next ECB rate-setting meeting will take place on December 16, when the Bank will also announce how it intends to end its emergency bond buying program.