FRANKFURT -The recent rise in euro zone inflation has a structural driver in supply disruptions and the European Central Bank has to watch out for any sign of wages increases, ECB vice-president Luis de Guindos said on Monday.
The ECB officially expects price growth in the euro zone, which hit 3.4% last month, to ease back below its 2% goal next year, but many inside the bank fear inflation will prove stickier.
De Guindos repeated the ECB‘s projections but cautioned that some of the drivers of the recent inflation spike, such as supply bottlenecks and higher energy costs, were having a “structural” impact and might affect workers’ perceptions and wage demands.
“This inflation increase is not only responding to base effects but there is also a component that is going to have a more structural impact,” de Guindos told a Spanish event.
“This is having an impact that goes beyond what we were expecting only a few months ago.”
He added the ECB‘s monetary policy response would have to change if inflation became permanent as a result of these factors lasting longer than expected or because they were starting to have an impact on wage negotiations.
“In the labour market we haven’t seen sizeable salary increases for the time being,” de Guindos said.
“But we have to be careful and cautious because salary negotiations are only starting and the perception of inflation becomes more evident as time goes by.”
Sources told Reuters last month that several ECB policymakers were bracing for inflation to exceed the bank’s already raised estimates of 2.2% for this year, 1.7% for the next and 1.5% for 2023.
This was seen paving the way for the bank to end its emergency bond purchases in March, the sources added. A decision is scheduled for December.
De Guindos said if economic activity normalised and the pandemic receded the ECB‘s Pandemic Emergency Purchase Programme would “have accomplished its mission”.