In an interview with Handelsblatt, ECB Vice President Luis de Guindos said Eurozone is not heading towards stagflatoin. “In the most recent projections, even in our most adverse scenario for the current year, we still foresee growth of more than 2%, so no stagflation,” he said. “Inflation, however, is likely to remain higher for a longer period than expected before the war.”
De Guindos also said what matters for the central bank now is the extent to which wages respond. “If wage increases are too high, they can push prices up even more and contribute to persistently higher inflation.” But he added, “We have not seen any signs of that yet”.
He added last week’s statement “delink the potential interest rate hikes from the asset purchase programme”. The timing of rate hike “all depends on the data”. “The price shock in energy and commodities that we’re currently experiencing is making many firms and workers worse off. Fiscal policy should provide temporary, targeted support to help reduce the burden. This would also reduce the danger of a wage-price spiral,” he said.
