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.