European Central Bank: wage increases will continue to fuel inflation

Head of Economics at the European Central Bank Philip Lane warns that wage increases will be the main driver of higher prices in the coming years.

  • Head of Economics at the European Central Bank Philip Lane
    Head of Economics at the European Central Bank Philip Lane

The head of the economics department at the European Central Bank, Philip Lane, said today, Friday, that the increase in wages will continue to fuel inflation in the euro area, even after the end of the consequences of the shocks of the Corona epidemic and the war in Ukraine.

Philip Lane said, “Even after the energy and pandemic-related factors that cause the inflationary trend dissipate, wage increases will be the main driver of price increases in the coming years.”

With inflation crossing the 10% threshold during the fall in the region, the European Central Bank fears entering into a spiral of interdependent visitation in wages and prices that may fail its expectations of the gradual return of inflation to the target it set at 2%.

However, Lane stressed that this phenomenon is not currently in the process of being verified, as the recent negotiations generally led to an increase in wages by an average of 3.8% for the year 2022 and 3.5% for the year 2023.

In Germany, about four million employees in the industrial sector, in electronics and mining, received a wage increase of 8.5 percent over two years on Friday.

Of course, these increases are considered “above the normal level”, but they reflect “in large part the compensation mechanism following the decline in real wages recorded since mid-2021” when the increase in energy and raw materials prices led to a sharp rise in inflation in the world and a decline in purchasing power.

Lane believed that prices will continue to rise in the future, but this should not be interpreted as a “permanent change in the dynamic of basic wages.”

He concluded that after passing the stage of compensating for the decline in wages, “we can expect basic wages to grow at a pace equal to the sum of labor productivity growth and the inflation target of 2%.”

Also read: The high cost of living is exhausting European consumers on “Black Friday”

Citizens from various European countries carry out continuous demonstrations and strikes to demand better wages.

The article is in Arabic

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