MADRID – Second-round effects stemming from wage agreements could potentially trigger “very persistent” high inflation in the euro zone, which the bloc’s monetary policy arsenal is equipped to tackle, the Bank of Spain’s Deputy Governor said on Wednesday.
Price growth in the bloc hit 3.4% year on year last month and, while the European Central Bank predicts that rate will ease back below its 2% target next year, some inside the bank fear inflationary pressures will prove stickier.
Margarita Delgado – who sits on the ECB‘s supervisory board – said that, if supply bottlenecks lasted longer than anticipated, high inflation could feed into new wage deals and thence higher production costs and prices.
“Through these second-round effects, the high inflation we are now seeing could become very persistent,” she told a global investment forum on the ECB‘s 2021 strategy review.
“This is a scenario that we cannot discard at all.”
Delgado said that, while the current ultra-low interest rate environment made it very difficult for central banks to fight low inflation, the fight against high inflation did not face such limitations.
“This, together with the fact that the ECB has a clear 2% inflation target, makes me confident that the current high inflation we are currently experiencing will not become persistent in the future,” she said.