ECB Executive Board Isabel Schnabel told a panel in Berlin that “domestic prices pressures are driven by both profits and wages.”
The key question moving forward, she indicated, hinges on whether firms will absorb wage increases into their profit margins or pass the costs on to consumers.
She noted the strength of the labour market, citing the historically high ratio of job vacancies to unemployed people. This, she suggested, has heightened the bargaining power of workers.
She offered a word of caution: “If wages rise faster than we thought and productivity growth doesn’t recover, then there is a risk that this could turn into such a wage-price spiral,” she warned.
