In a speech delivered on Wednesday 27 March at an event organised by the House of the Euro and the Centre for European Reform (CER), Piero Cipollone, a member of the Executive Board of the European Central Bank (ECB), examined the risk that wage and productivity growth might be incompatible with inflation convergence towards the ECB’s medium-term price stability objective of 2%.
He felt that we were still a long way from a scenario of stability in the euro area, and that real wages were still below pre-Covid-19 levels, while profit growth had until recently been high by historical standards, although it was now normalising.
Piero Cipollone warned that, while wage growth should moderate in the medium term, “an excessive focus on short-term wage developments may not take into full consideration the recovery in wages that can – and needs to – take place for the euro area’s currently fragile recovery to gain a stronger footing”.
According to Mr Cipollone, this catching up is a condition for the increase in private consumption, but he indicated that, even at the end of the projection horizon, real wages should still be slightly below the level that would be justified by the growth in labour productivity since the pandemic.
Lastly, Piero Cipollone felt that, if the new macroeconomic data expected (see EUROPE 13376/22) confirmed the scenario emerging in March, the ECB should be ready to ease its restrictive policy quickly. Furthermore, he believes that the increased confidence in a rapid return to the objective of price stability should allow forward-looking information to regain importance in the ECB’s reaction function.
Link to the speech: https://aeur.eu/f/bjs (Original version in French by Émilie Vanderhulst)