The governor of Banco de Portugal said this Monday that the current watchword is to nullify any effects that could depress prices, also referring to workers’ wages and corporate profits.
“Today, the watchword for the entire economy is to mitigate and nullify any effects that could depress prices”said Mário Centeno in a luncheon speech promoted by the Associação da Hotelaria de Portugal (AHP), in a hotel in Lisbon.
According to Centeno, there are currently signs that inflationary pressures may be easing, especially in commodities and energy goods, as the prices of most of these goods are lower than a year ago.
However, other factors continue to weigh on inflation, wages and corporate profit margins.
Centeno said that raising wages or profit margins seems to have immediate benefits (for employees and for shareholders, respectively), but in the medium term they exacerbate the situation because they cause inflation and imply that central banks are taking measures to combat (by raise interest rates).
“A one percentage point increase, whether in wages or profit margins, puts pressure on inflation, which in turn puts pressure on central bank decisions. In the short run, it looks like we all win – we [banco central] we do our part because we raise interest rates, companies and employees get a percentage point more in margin or wages – but the truth is that in the medium term we will lose everyone”considered.
For Centeno, this “almost myopic” behavior of the economy, of “apparent lack of coordination”, must be fought, so “the watchword for the entire economy is to mitigate and nullify any effects that could depress prices”.
Centeno said that central banks “they love to talk about wages and that there should be restraint in the pass-through of inflation to wages”considering that “they are right” because it is necessary to avoid inflationary spirals through costs.
However, he remembered that “the decisions companies make about profit margins have the same effect” on prices, so both dimensions should be placed at the same level.
As for interest rates, Centeno said that “they rose too fast” than would happen in a normal scenario, but that the ECB was “forced to do so” by the external effect of the inflation wave and that interest rates in terms of reais nevertheless remain very negative , despite the negative impact of rising interest rates on debt holders (mainly bank credit).
This was the first time the governor of Banco de Portugal had spoken since the recent banking crisis, after saying that the latest developments in the European banking system are encouraging, but that the central bank will remain alert to developments and the risks for banks and the Portugal.
After intense negotiations over the weekend, Swiss UBS agreed on Sunday to buy its rival Credit Suisse for a low price, with substantial guarantees from the government in Bern and liquidity from the country’s central bank (BNS).
In the United States, Silicon Valley Bank went bankrupt, with authorities guaranteeing all deposits for fear that other banks of significant size would be called into question.
Last week, the ECB’s Supervisory Board held two emergency meetings. Last Monday, the president of the ECB said there is enough financial stability to cope with “tensions” caused by the collapse of the United States banking system and the collapse of the Credit Suisse stock market.
Source: DN
