“ECB must continue restraining economy, Lane asserts” | WTAQ News Talk | 97.5 FM · 1360 AM

According to ECB chief economist Philip Lane, Euro zone wage growth is projected to slow down next year. Despite this, inflationary pressures are still strong enough for the European Central Bank to maintain a restrictive monetary stance. This is holding back economic growth in the region.

Lane emphasized the high level of uncertainty and elevated price pressures in indicators for domestic inflation, services inflation, and wage growth. He mentioned that the ECB is not committing to additional policy easing after the rate cut, and decisions regarding further moves will depend on incoming data on a meeting-by-meeting basis.

Despite the recent rate cut by the ECB, there were no promises of further cuts. However, ECB President Christine Lagarde hinted at the possibility of future cuts. The key driver of inflation, wage growth, is currently high as companies adjust wages in response to past inflation but is expected to slow down next year. This decline in wage growth is forecasted to contribute to a projected decrease in inflation in 2025. Additionally, corporate profit margins are expected to decrease, absorbing some of the wage increases and alleviating pressure on consumer prices.

Although economic growth has improved slightly over time, it is not anticipated to significantly raise price pressures as demand in sectors sensitive to interest rates remains subdued. Lane’s remarks were made during a speech in Dublin and suggest that only modest rate cuts can be expected over the next 18 months.

In summary, Euro zone wage growth is projected to slow down next year due to various factors such as high uncertainty and elevated price pressures in several indicators. Despite this decline in wage growth, it’s expected that corporate profit margins will decrease and absorb some of the wage increases thereby alleviating pressure on consumer prices.

By Sophia Gonzalez

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