Euro-zone inflation remains far too high and the European Central Bank will keep raising interest rates to dampen underlying price pressures, ECB President Christine Lagarde said on Wednesday, repeating the bank's most recent policy guidance. The ECB has raised rates by a combined 300 basis points since July, and promised another 50-basis-point move in March to dampen inflation, which was initially driven by high energy costs but has broadened out to impact nearly all sectors.
"Overall, price pressures remain strong and underlying inflation is still high," Lagarde told the European Parliament in Strasbourg. "Even though most measures of longer-term inflation expectations currently stand at around 2%, these measures warrant continued monitoring." Inflation in the 20-nation euro zone fell to 8.5% in January from a peak of 10.6% in October, but the figure is subject to revision and the final figure is likely to be higher once German data is added in.
Lagarde noted that inflation in services and non-energy industrial goods was also fast, and higher ECB rates could dampen demand, lowering price pressures.
Lagarde also singled out wage growth as a potential
source of durable inflation.
Wage growth, seen over 5% this year, is still just making up
for lost real earnings, but a quick rise in nominal incomes
could become self-reinforcing and impact longer-term price
prospects.
"The risk of a stronger pass-through of high inflation
to wages cannot be ruled out," Lagarde said. "At this point in
time, we are not seeing any obvious sign of an emerging
self-sustained wage-price spiral, but that could obviously
happen and would come and fuel inflation."
(Reporting by Balazs Koranyi
Editing by Francesco Canepa and Leslie Adler)
