ECB Chief Economist Philip Lane has asserted that falling energy prices could lead to lower core inflation due to reduced living costs and, consequently, restrained wage increases. However, he stressed the timeline and extent of this effect remain uncertain.
Speaking at a conference in Dubrovnik, Lane said, “I don’t think it’s symmetric… but when energy prices fall, core inflation does follow, because there is less pressure from an energy cost, there’s less pressure on the cost of living, therefore on nominal wage increases
“So, we do think this spectacular reversal of energy prices will feed into lower core, but the timeline for that and the scale of it is uncertain,” he added.
Lane further observed that wage growth is generally progressing at a moderate pace, with many people still bound to older contracts. “The latest deals are coming in at above 5%, but (this is in the) ballpark of what we expect,” he noted.
Despite this, he expects nominal wage growth to peak this year and suggested it would take real wages until 2025 to recover back to their 2019 level.
