(Bloomberg) — European Central Bank (ECB) Governing Council member Boris Vujicic says European Central Bank officials need to ensure there is no secondary impact on inflation from wages before cutting interest rates. He said there is.
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“Patience is needed at this point before entering the easing cycle to ensure that wage costs do not turn into sustained wage pressures,” he said on Sunday.
Speaking at the Warwick Economics Summit in the United Kingdom, the Governor of the Central Bank of Croatia said that due to the high profitability of companies in recent years, they can absorb “much of the wage costs through their profit margins,” so prices will not rise as much. He said he expected that.
“But we won't be sure about that until we see it,” he said, urging a wait-and-see attitude “lest we repeat the mistakes that central banks have sometimes made in the past.”
ECB policymakers are in a pattern of keeping policy on hold as they await further data to determine whether developments in inflation and wages allow them to start cutting interest rates. Markets expect such a move to occur as early as April, but officials appear to be leaning toward June.
rate pass
“If you look at what is defined as domestic inflation, it's still resilient at the moment, so that's the part that we would like to see ease before we go into the easing cycle,” Vujicic said.
He said the main focus will be on the European economy in determining the start, speed and speed of the end of that cycle, adding: “None of it has to be the same as the US. It's actually on the way up. It doesn't have to be the same as not having it,” he added.
Asked to compare the current situation with the wage-price spiral seen half a century ago, Vujic said: “Wage pressures remain strong, but I don't think we are in the world of the 1970s.” .
This is because companies have less pricing power due to increased competition, lower union density and fewer inflation-linked contracts, he said.
(Latest information on the Fed in the 7th paragraph)
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