Post by account_disabled on Feb 22, 2024 6:11:52 GMT -5
Several of the European Central Bank's most aggressive interest rate setters believe interest rates could rise again in December if wages continue to rise rapidly and inflation proves stiffer than expected. Investors widely expect Thursday's ECB rate hike, which saw the deposit rate hit 4 percent, to be the last. But three people involved in Thursday's policy meeting told the Financial Times that if eurozone inflation were higher than expected, the door was still open to raising rates again when the central bank updates its projections in December. . "I don't agree that we're done for good," said one policymaker. “We would need a very negative surprise. “We will rise again in October, but it is possible that we will do so in December.” Another said a quarter-point increase in December “is still possible; I do not rule". The central bank said on Thursday that keeping rates at their current level "for a sufficiently long period" would make "a substantial contribution to the timely return of inflation" to its 2 percent target. That rhetoric fueled investor expectations that this would be its final rise.
It was explained more explicitly than I thought that inflation has to surprise a lot on the upside for it to rise again,” said Dirk Schumacher, a former ECB staffer who now works as an economist Pakistan Phone Number at the French bank Natixis. However, officials stressed uncertainty over how quickly price pressures would ease, especially as wage growth continues to accelerate across much of Europe, an issue flagged by ECB chief economist Philip Lane during this week's meeting. Lane highlighted recent agreements with Dutch unions for workers to receive pay increases of at least 10 percent. Policymakers said they were informed about the deals by Dutch central bank chief Klaas Knot. The ECB and Knot declined to comment. ECB President Christine Lagarde said on Thursday that the contribution of labor costs to eurozone inflation had increased over the three months to June. Pay per employee in the eurozone rose 5.5 percent in the second quarter from a year earlier, near a record high.
This helped push inflation in the services sector, where labor accounts for a large share of overall costs, to 5.5 percent in August. "A lasting rise in inflation expectations above our target, or higher-than-expected increases in wages or profit margins, could push inflation higher, even in the medium term," Lagarde said, adding that no could say that rates were "at their peak." . But he also said there were early signs that companies were absorbing higher wage costs by reducing profit margins, rather than raising prices. The ECB raised its inflation forecasts for this year and next on Thursday, mainly due to higher energy prices, while predicting consumer price growth would only slow to its 2 percent target by the end of 2025. "We've had inflation above target for two years and we project it will stay above target for another two years, so we need it to come down to target in a timely manner," said one participant at this week's meeting.
It was explained more explicitly than I thought that inflation has to surprise a lot on the upside for it to rise again,” said Dirk Schumacher, a former ECB staffer who now works as an economist Pakistan Phone Number at the French bank Natixis. However, officials stressed uncertainty over how quickly price pressures would ease, especially as wage growth continues to accelerate across much of Europe, an issue flagged by ECB chief economist Philip Lane during this week's meeting. Lane highlighted recent agreements with Dutch unions for workers to receive pay increases of at least 10 percent. Policymakers said they were informed about the deals by Dutch central bank chief Klaas Knot. The ECB and Knot declined to comment. ECB President Christine Lagarde said on Thursday that the contribution of labor costs to eurozone inflation had increased over the three months to June. Pay per employee in the eurozone rose 5.5 percent in the second quarter from a year earlier, near a record high.
This helped push inflation in the services sector, where labor accounts for a large share of overall costs, to 5.5 percent in August. "A lasting rise in inflation expectations above our target, or higher-than-expected increases in wages or profit margins, could push inflation higher, even in the medium term," Lagarde said, adding that no could say that rates were "at their peak." . But he also said there were early signs that companies were absorbing higher wage costs by reducing profit margins, rather than raising prices. The ECB raised its inflation forecasts for this year and next on Thursday, mainly due to higher energy prices, while predicting consumer price growth would only slow to its 2 percent target by the end of 2025. "We've had inflation above target for two years and we project it will stay above target for another two years, so we need it to come down to target in a timely manner," said one participant at this week's meeting.