May 25, 2023
ECB’s Guindos Says Wages, Margins Pose Upside Risks to Inflation
(Bloomberg) -- European Central Bank Vice President Luis de Guindos said upside dangers to inflation stem from rising wages and widening profit margins, while downside risks include weaker lending if the banking sector comes under renewed pressure.
“Our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium-term target,” Guindos told lawmakers Thursday in Brussels.
Once there, they’ll “be kept at those levels for as long as necessary,” he said.
As ECB officials discuss how much more they need to raise interest rates to return inflation to their 2% goal, some say hikes may be needed into the fall. That could mean three quarter-point increases in the deposit rate, to 4% — more than the two moves predicted by markets and most economists.
One of the officials suggesting a September rate hike is Bundesbank President Joachim Nagel, who’s among the most hawkish members of the ECB Governing Council.
Speaking just hours after his country’s statistics office announced that Germany suffered a recession earlier this year, he reiterated the need for more action to tame consumer prices.
“Within less than a year we have raised the key interest rate by 375 basis points so far, stopped net purchases of bonds, and will probably stop reinvesting via the APP program from July,” he said. “And the ECB Governing Council will continue on this monetary tightening path to overcome high inflation.”
(Updates with Nagel starting in sixth paragrph)
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