MNI BRIEF: EZ Pay Growth Sparks Price Spiral Fears-ECB's Vasle
Evidence of "very negative" developments in eurozone wage dynamics, Bank of Slovenia's Vasle says.
Euro area inflation has not yet peaked, with evidence that some upside risks to the inflation outlook stemming from pay increases may already have arrived, Bank of Slovenia governor Bostjan Vasle said at a panel event Thursday.
“I am afraid that some very negative developments are already happening in some parts in the euro area,” he said.
Further hikes will be necessary to take rates past the currently understood neutral rate of interest and into restrictive territory, with balance sheet reduction to start next year, he added.
Fiscal measures aimed at cushioning the effect of the energy price shock on households and businesses must be temporary and targeted, in contrast to the more generous, across-the-board measures seen during the Covid-19 crisis, Vasle said.
Financial sector preparedness, in particular that of non-banks, is also crucial, he said - citing recent events in the UK's gilt market as evidence of improper risk management.