ECB Governing Council member Olli Rehn told German newspaper Handelsblatt that “the most recent data point to a weakening of the economy.” And, the reasons for the slowdown mainly lie abroad, including US-China trade conflicts. Though, there were also uncertainties over Brexit, yellow vest protest in France, fiscal issues in Italy and slower industrial production in Germany.

But Rehn also noted that ECB’s monetary policy orientation is clear and unchanged. He added, “we have said that rates will be at their current level until we have sustainably reached our monetary policy goal.” For now, wage growth had not had much impact on core inflation yet even though “at the end of last year it looked as if there would be stronger momentum in inflation.”. And, “we have to wait and see how long the period of weaker growth will last.”

ECB chief economist Peter Praet delivers a speech titled “Monetary policy in a low interest rate environment” at the Congress of Actuaries, Berlin today.

There, he noted that “the key question for monetary policy is: will growth remain sufficiently strong for the ongoing pressure on resource utilisation to continue to nudge inflation along a pathway that rises fast enough towards our objective?”

In Praet’s view, the “main intersection” between growth and inflation formation lies in the labor market. He said that “a look at the sectoral make-up of the most recent developments in the job market is encouraging”. PMIs continued to signal employment creation across sectors and countries. And, measures of labour market titaness show “upward trend” has steepened over the past year. Measures of slack also showed improvement.

And at the same time “there is growing evidence that labour market tightness is translating into a stronger pick-up in wage growth”. Annual wage growth rose to 1.9% in Q1, up from Q4’s 1.6%. The upsurge was due to sharp rise in 2.3% in negotiated wages in Germany. And rising wage pressures are starting to feed into producers prices too.

Praet added that “signals showing the convergence of inflation towards our aim have been improving, and both the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2% over the medium term. ”

Full speech here

Praet also added that “next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases.” And, it will be a “judgement” call.

Eurozone CPI slowed to 0.1% yoy in May, down from 0.3% yoy. That’s also the lowest level in four years. Nevertheless, the slow down was largely driving by -12.0% yoy in energy prices. Excluding energy, CPI was unchanged at 1.4%. CPI ex energy and unprocessed food was unchanged at 1.1% yoy. CPI ex energy, good, alcohol & tobacco was also unchanged at 0.9% yoy.

Separately, ECB Governing Council member Ignazio Visco warned, “steps must be taken to counter the significant risk of low inflation and the marked fall in economic activity from translating into a permanent reduction in expected inflation or into the possible resurfacing of the threat of deflation.”

“Also as a result of the high levels of public and private debt in the euro area as a whole, this could trigger a dangerous spiral between the fall in prices and that in aggregate demand.”