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Inflation in the Frankfurt-Eurozone will take longer to reach its target than previously thought, but so far there is no evidence that highs are embedded in wages, ECB Luis de Guindos said. The vice-president said on Wednesday.
High inflation is challenging the ECB. The ECB has little experience dealing with sharp price increases, complicating important policy decisions scheduled for December 16.
The ECB argues that inflation is temporary and falls below target on its own, as more and more policymakers have expressed concern that milder outcomes are possible. Banks need to curb stimulus.
De Gindos, almost repeating the ECB’s recent stance, acknowledged that inflation risk was “moderate” and that the decline was slower than previously thought.
“I’m confident that inflation will start to fall early next year and slow further later next year, reaching the target of 2%,” Degindos said at the meeting.
“Maybe it will take a little longer to converge towards the 2% target, but there is no doubt that inflation will slow in 2022,” he added.
Inflation reached a record high of 4.9% last month. Most private forecasters do not expect to fall below the ECB’s 2% target until late 2022.
De Gindos also downplayed the effects of higher prices, arguing that there was no evidence that wages were responding to temporary price pressures.
“But wage growth is expected to be higher in 2022 than in 2021,” he said. “And we … need to be vigilant about the evolution of wages and the wage negotiation process.”
He also said that supply chain bottlenecks and pandemic-related restrictions could impede growth in the short term, but these factors are unlikely to have an even greater impact.
“I don’t think this will hinder the recovery of the euro area,” he said. “Growth factors are very strong in the medium term.”
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