Economic activity is faltering, as is job creation, but there are clear signs that “wage pressures remain strong” and will from now on be a decisive internal factor that will continue to fuel the eurozone’s excessively high inflation, above 2%. the President of the European Central Bank (ECB) noted yesterday during a hearing in the European Parliament (EP).
The more internally rooted inflation is, the later an interest rate cut will occur as the delayed transmission of price shocks lasts.
Christine Lagarde made clear that there is little reason to think that inflation will fall definitively and across the board due to the pressure of rising wages (even more than the pressure of rising profits) and the ‘considerable uncertainty’ that remains to be seen come. , repeating October’s warning: “we expect interest rates to remain stable [do BCE/Eurossistema] at current levels for a sufficient period of time.”
In a debate in the European Parliament yesterday, Christine Lagarde made it clear that although European inflation is declining, nothing is yet under control.
In Brussels, the ECB chief even said that many signs of falling inflation rates merely reflect a base effect, i.e. the fact that they rose dramatically a year earlier. In other words: prices remain too high, as the central banker believes.
‘Inflation significantly uncertain’
Lagarde began telling MEPs that eurozone inflation “returned to 2.9% in October” and that “this decline was helped by what we call base effects.”
Such effects “were particularly visible in the decline in energy inflation, which stood at -11.2%”, but in food, where inflation also fell, “the figure is likely to remain strong for the rest of the year”, he predicted Lagarde.
Underlying inflation, i.e. excluding energy and food, “continued to moderate”, after declining to “4.2%” in October.
However, “the domestic inflation indicator calculated by the ECB – which excludes items with high levels of imports – has not fallen much, reflecting the fact that inflation is now driven more by internal sources than by external ones,” the president warned of the ECB. ECB.
He continued, warning that “wage pressures remain strong” and that “this is mainly the result of recovery effects linked to past inflation rather than self-fulfilling dynamics.”
In other words, salaries are rising as a result of negotiations and decisions from the recent past, when inflation was in a first phase of strong escalation, while the second phase is still missing, namely the attempt to slow down the pace of salary updates after the maintain the first phase. inflation shock.
In this sense, the ECB says it expects that “wages will remain a key factor in domestic inflation” and notes that “at the same time, the contribution from profits – which has been responsible for much of the strong domestic price pressures recently recorded – weakened now”.
Lagarde stated that “we expect the weakening of inflation pressures to continue, although headline inflation may rise again slightly in the coming months, mainly due to some base effects”, but in any case “the medium-term outlook remains surrounded by significant uncertainty.”
On the corporate side, industrial production continued to decline and activity in the services sector has weakened further.
“Despite the slowdown in activity, the labor market remains resilient,” but “some signs are emerging that employment growth could lose momentum at the end of the year,” Lagarde concluded.
The Centeno case
PSD MEP Lídia Pereira also questioned Lagarde about the controversy surrounding the independence of Bank of Portugal Governor Mário Centeno, who was invited by António Costa to become Prime Minister in the PS absolute majority government. Centeno replied that he was thinking about it or thinking about it.
The parliamentarian was of the opinion that there has been a “flagrant violation of the BdP’s code of conduct”, to which Lagarde replied: “I have asked the ECB Ethics Committee to analyze the matter and I will respond after receiving the above-mentioned evaluation ‘, requested about two weeks ago after several EPP deputies raised the issue in a letter to Lagarde.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
