Limiting rapid wage growth is necessary to contain inflation – POLITICO

Wages in the euro zone are rising faster than expected, and the European Central Bank must prevent this from adding to already high inflation in the currency bloc, said ECB President Christine Lagarde.

“We know that wages are increasing, probably at a faster rate than expected,” Lagarde told Croatian newspaper Jutarnji list, before Croatia joined the currency bloc. « We must not let inflationary expectations become unanchored or wages have an inflationary effect. »

Lagarde added that, for now, ECB interest rates need to be higher in order to curb inflation. The central bank must « take the necessary steps » to lower inflation to 2% from its current rate of almost 10% in the euro zone, she said.

“We have to be careful that the internal causes we observe, which are mainly related to fiscal measures and wage dynamics, do not lead to the entrenchment of inflation,” Lagarde warned.

The ECB has raised interest rates by 0.5% to 2.5% since July in an attempt to stem a spike in inflation. The central bank has said it is ready to take additional measures to try to bring the inflation rate as close to 2% as possible, as required by the ECB’s mandate. Lagarde did not provide any details about the new policies in the interview.

As Croatia becomes the newest member of the EU’s common currency on January 1, Lagarde said « the euro will act as a shield for Croatia » but warned that this « does not mean you have to stop reforms ».

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