In a speech today, ECB Executive Board member Isabel Schnabel noted the role of “persistently low, and recently even negative, productivity growth” in exacerbating the inflationary pressures from the current strong growth in nominal wages.
She pointed out that this scenario increases the likelihood of firms passing higher wage costs onto consumers, thus “delaying inflation returning to our 2% target.”
With the backdrop of a prolonged period of high inflation, Schnabel argued for the necessity of maintaining restrictive monetary policy stance until there is clear confidence that inflation will sustainably return to ECB’s medium-term objective.
She warned against premature policy adjustments, suggesting that to avoid a “stop-and-go policy” reminiscent of the 1970s, a cautious approach is essential.
“We must be cautious not to adjust our policy stance prematurely,” she said.
Full speech of ECB Schnabel here.
