The European Central Bank has seen very little pressure on inflation despite an economic recovery and policymakers will discuss this autumn whether to curb stimulus, ECB Executive Board member Yves Mersch said on Monday.
Mersch, considered a policy hawk, told Luxembourg radio station 100.7 in an interview that there were a number of reasons inflation was not rising, principal among them the relative lack of wage pressure.
“The main driver of inflation is normally wages. We see that the evolution of wages in most countries is not what it usually is in a recovery, which is that they rise very strongly,” Mersch said.
Investors expect the ECB to reduce asset buys from next year as growth is robust and the threat of inflation is gone. But policy is expected to remain easy for years to come as inflation will not return to the bank’s target before the decade ends.
Mersch said that limited wage expansion could be caused by competition from other countries, global value chains that dampened the cost of production and unions focused more on finding people jobs than pushing for higher wages.
The ECB’s monetary policy had accordingly not so far changed.
“Because quite simply the only thing that interests us is the evolution of prices and it simply isn’t where we want it yet,” Mersch said, adding that more structural reforms would likely see prices reacting more quickly, allowing the ECB to scale back its support sooner.
The central bank was in discussions about how to adapt its monetary policy and whether withdrawal of support would land the euro zone in the place the bank wanted it to be.
“This discussion has started but it isn’t like we are saying that we have to bring everything back to zero as we see there is still very little pressure in the price pipeline.”
“Over the course of autumn we will see how far our instruments should or have to be adapted on the basis of new insights and how confident we are that we can withdraw the support to the economy through our monetary policy,” he said.
Source: Reuters (Reporting by Michele Sinner, writing by Philip Blenkinsop)