MNI BRIEF: No Time To Pause ECB Rate Hikes - Isabel Schnabel

The persistence of high inflation mean the European Central Bank cannot curtail its current hiking cycle in anticipation of a recession which is in itself unlikely to return price pressures to target, Executive Board member Isabel Schabel said Thursday.

“There is no time for monetary policy to pause,” Schnabel told an audience in Slovenia, adding that monetary policy will probably need to become restrictive in order for inflation to ease back to 2% over the medium term.

Current underlying inflation dynamics can give a clearer indication as to the likely persistence of inflation than previous projection models were able to capture, she said, citing also a rightwards move in longer-term expectations in both the Survey of Professional Forecasters and the Consumer Expectations Survey.

Real-time data show euro area wage growth has also started to pick up “significantly,” Schnabel said. Tight labour market conditions have both increased bargaining power and begun to constrain production, she said.