In an interview with Financial Times, ECB Governing Council member Pierre Wunsch mentioned that the central bank is waiting for both wage growth and core inflation to decrease in conjunction with headline inflation before considering a pause.
Wunsch stated, “I would not be surprised if we had to go to 4 percent at some point.” He emphasized that ECB aims for a soft landing, and “nobody is going to err on the side of destroying the economy for the sake of destroying the economy.”
“But I have absolutely no indication that what we are doing (on interest rates) is too much,” he added.
Regarding rate hikes, Wunsch clarified, “I’m not a fetishist. I’m not going to hike rates even in a recession just because we have 2.3 percent or 2.1 percent inflation in the two-year forecast. But I’m not seeing inflation numbers going in the right direction yet.”
He also pointed out that if wage agreements persist around a 5 percent growth for an extended period, inflation may not return to 2 percent on a structural basis.
