DUBLIN (Reuters) – Euro zone wage growth is set to slow next year but inflationary pressures are still strong enough for the European Central Bank to hold back economic growth, ECB chief economist Philip Lane said on Tuesday.
The ECB cut rates for the first time since 2019 on Thursday but held back from any promise to follow up its move, even if ECB President Christine Lagarde suggested this was the first step in a series of cuts.
“The high level of uncertainty and the still-elevated price pressures that are evident in the indicators for domestic inflation, services inflation and wage growth mean that we will need to maintain a restrictive monetary stance,” Lane said in a speech in Dublin.
Markets see little more than one rate cut over the second half of the year and between three and four moves over the next 18 months.
Lane, the architect of ECB policy decisions, added that the ECB is not committing to any further policy easing after last Thursday’s rate cut, and any follow up moves will depend on incoming data and decisions will be taken meeting-by-meeting.
Lane said that wage growth — the key driver of inflation — is elevated as firms adjust wages in response to past inflation but he was expecting a slowdown next year.
“This negatively-sloped profile for wage growth helps to underpin the projected decline in inflation in 2025, with less pressure from labour costs next year,” Lane said.
Lane added that corporate profit margins are also set to shrink further and that too will absorb some of the wage increases, taking pressure off consumer prices.
While economic growth has picked up, this does not seem to be threatening to boost price pressures since demand in sectors most sensitive to interest rates remains subdued.
(Reporting by Padraic Halpin; Writing by Balazs Koranyi; Editing by Peter Graff)
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