Wages in the eurozone are increasing faster than previously estimated, and the European Central Bank must prevent this from adding to already high inflation in the currency bloc, ECB President Christine Lagarde said.
“We know wages are increasing, probably at a faster pace than expected,” Lagarde told Croatian newspaper Jutarnji list, ahead of Croatia joining the currency bloc. “We must not allow inflationary expectations to become de-anchored or wages to have an inflationary effect.”
Lagarde added that, at the moment, the ECB’s interest rates must be higher in order to curb inflation. The central bank has to “take the necessary measures” to lower inflation to 2 percent from its current rate of near 10 percent in the eurozone, she said.
“We need to be careful that the domestic causes that we are seeing, which are mainly related to fiscal measures and wage dynamics, do not lead to inflation becoming entrenched,” Lagarde warned.
The ECB has raised its interest rates from 0.5 percent to 2.5 percent since July in an attempt to stop a surge in inflation. The central bank has said it was ready to take additional measures to try to bring the inflation rate as close to 2 percent as possible — as required in the ECB’s mandate. Lagarde didn’t provide any details for new policies in the interview.
As Croatia becomes the newest member of the EU’s common currency on January 1, Lagarde said that “the euro will serve as a shield for Croatia” but warned that it “does not mean that you should stop with reforms.”
