European Central Bank Committee Member Vujcic stated today that the Eurozone’s economic growth is below expectations, which could potentially lead to a faster decline in inflation. However, the flexibility in the labor market will continue to drive rapid wage growth, posing some upside risks to prices.
Vujcic declined to reveal whether he supports a rate hike or keeping rates unchanged at the policy meeting on September 14th. Nevertheless, he indicated that it might take several months for the European Central Bank to conclude that interest rates have peaked, possibly not until next spring before inflation returns to the target level of 2%.
He remarked, “Wage pressures persist, and based on recent data, we believe that wage pressure will not significantly abate.”
“As long as that’s the case, I am concerned that the last mile of (deflation) will be very challenging.”
