MNI BRIEF: Low EZ Productivity Cost Pass-Through Risk -Schnabel
ECB Executive Board member sees upside inflation risk from lowe EZ productivity numbers.
Persistently low and now even negative productivity numbers in the euro area are a risk factor for the European Central Bank to study before loosening monetary policy, executive board member Isabel Schnabel said Friday.
Low European productivity "exacerbates the effects that the current strong growth in nominal wages has in unit labour costs," she said in a speech, noting that productivity growth was key from a monetary policy perspective by raising the natural interest rate.
"New estimates show that an increase in trend productivity growth by 1 percentage point can increase r* by 0.6 pp. A higher r* will reduce the need of unconventional monetary policy measures that often come with larger side effects," she added.