Warns of the upward trend in the indexation of agreements to inflation
MADRID, 22 Dic. (EUROPA PRESS) –
The vice president of the European Central Bank (ECB), Luis de Guindos, believes that increases of 50 basis points in interest rates, such as the one announced last week by the institution, could become the “new norm” for the entity during a period of time until rates enter restrictive territory.
“50 basis point increases may become the new norm in the short term,” says Guindos in an interview with the French newspaper ‘Le Monde’, where he warns that the ECB can be expected to continue raising interest rates at this rate “over a period of time” pushing rates into restrictive territory.
“The steps we have taken up to now are going to have an impact on inflation, but we still have to do more,” stressed the former Spanish Minister of Economy, after the ECB raised the price of money by 250 basis points from the last July.
In this sense, despite the fears of a worsening of the economic weakness that could even drag the euro zone into a mild recession during the winter, Guindos recalls that the ECB’s mandate leaves no alternative to the institution. “We have no other option,” he recalls, to warn that if inflation is not controlled “it will be impossible for the economy to rebound.”
Regarding the macroeconomic projections for the euro area, the Spaniard acknowledges that the indications for the fourth quarter of 2022 suggest that it may have entered slightly negative territory, with the expectation that GDP will fall by 0.2%.
“The leading indicators that we have are not good. Therefore, our projections expect the euro area to fall into a mild recession in the last quarter of this year and in the first quarter of 2023, when GDP is expected to contract. 0.1%”, he points out.
In the case of inflation, Guindos believes that in the next two or three months it will remain around the current level and in the second quarter of 2023 it will moderate to around 7% by mid-year, still clearly above the stability target. 2% in the medium term. “We have no choice but to act,” he defends.
In its latest projections, the ECB placed the inflation rate for 2023 at 6.3% for 2023, compared to 5.5% previously expected, while in 2024 it expects it to still be 3.4%, compared to 2 .3% that was estimated in September.
Thus, the vice president of the ECB reiterates that one of the main issues in the fight against inflation is for the institution to maintain its credibility so that households do not demand even higher wage increases.
In this sense, Guindos considers it normal that wages are catching up and points out that at the moment there is no upward spiral between prices and wages, so it is important that the ECB maintains its credibility so that inflation expectations continue to be anchored. .
“If households start to think that the ECB is not doing enough and expect inflation to be 7% or 8% in the next three years, they would ask for a 7% or 8% wage increase, which would trigger the spiral. This would mean that we would have lost our credibility,” he says.
However, he warns that an increase in inflation-indexed agreements is beginning to be detected, as indicated by the figures from the Bank of Spain, which show that 25% of new salary agreements are now indexed to inflation. “A year ago there was hardly any, so it’s an upward trend,” he says.
