Yahoo Finance ECB Must Complete Job on Curbing Inflation, Vasle Says
(Bloomberg) -- The European Central Bank’s fight against inflation isn’t over yet and wage growth still poses a key risk to the price outlook, Governing Council member Bostjan Vasle said.
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The euro zone — like the US — needs more certainty that its job is done, according to the Slovenian official, who said in an interview in Sintra, Portugal, that the lesson in both jurisdictions is to be “very careful” not to declare victory prematurely.
“If everything will evolve as expected, we can continue to lower interest rates this year,” Vasle said. “But I wouldn’t want to tie this to any date — it’s linked to the data we’ll receive.”
The ECB started reducing rates last month following an unprecedented spate of hikes to tame the euro zone’s worst-ever inflation. Most officials have since been cagey on where policy is heading next — mindful of the uncertainty about the price outlook.
Earlier Tuesday, Chief Economist Philip Lane joined President Christine Lagarde in arguing that more time is needed to assess incoming information on inflation and growth. In an interview with Bloomberg Television’s Francine Lacqua he highlighted still high services prices.
Policymakers will later Tuesday receive an update on price pressures across the euro zone in June. That may show some small progress toward the 2% target, with economists estimating consumer-price growth moderated to 2.5% from 2.6%.
Vasle said 20-nation bloc’s economy is developing “in a relatively favorable way” and “we’re getting more certain that inflation is moving persistently toward our goal.” But the question is how fast this will happen, he added. “That’s why we would like to see more data before deciding on our next steps.”
He’s still very attentive to pay increases which turned out to be stronger than expected at the start of the year.
“Labor markets are still very tight, which is causing pressures on wages,” Vasle said. “That’s a very important element when considering our next steps.”
“If wages won’t moderate as expected, then inflation will turn out to be more sticky,” he said.
Vasle is also focused on “an enduring dichotomy between services inflation and goods inflation, with the former persisting at uncomfortably high levels, while the latter has fallen to below 1%.”
“Historically, domestic drivers of inflation, which drive services inflation, display a larger degree of persistence, while external drivers tend to revert more quickly,” he said. “Upcoming monetary-policy decisions should thus make sure that they do not lead to a monetary-policy stance that is structurally too loose over the medium-term.”
On political uncertainty in France between the country’s two rounds of elections, Vasle said “it’s important to have stability — political stability, stability on financial markets.” But he also said “we haven’t changed our thinking just because of what’s happening in some parts of Europe.”
“We have instruments and we’re prepared to deal with specific situations if they arise,” he said. “We’re not there yet.”
--With assistance from Joao Lima.
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