ECB
European Central Bank council member Axel Weber said the outlook for inflation has brightened and the recent fall in oil prices is “reassuring.''
“We're more confident now than a few weeks ago that the recent developments have contributed toward meeting our objective'' to ensure price stability, Weber said in a press briefing today after a meeting of European finance officials in Nice, France. Still, “I don't think we're in the situation that we can give the all-clear yet.''
Oil prices have receded from a record $147.27 a barrel in July, while they are still up more than 26 percent over the past year, crimping consumers' and companies' spending power. The ECB is concerned companies will raise prices to pass on higher raw- material costs and unions will push through bigger raises to compensate workers for the increased cost of living.
Euro-region inflation is currently at 3.8 percent after reaching a 16-year high of 4 percent in July, still almost double the ECB's limit of just below 2 percent.
The drop in oil and commodity prices “will help us to work toward our stability mandate,'' Weber said. “On the other hand, there are many pipeline effects,'' he added, referring to import and producer prices that may filter through into consumer-price inflation.
`Astonishingly High'
The ECB raised its inflation projections this month to around 3.5 percent for 2008 and 2.6 percent for 2009. At the same time, ECB staff lowered their growth forecasts for this year and next to about 1.4 percent and 1.2 percent, respectively free credit report .com.
Some of the recent wage demands are “astonishingly high'' and do not fully take into account the economic perspective and the price developments that the ECB foresees, Weber said. “We're seeing much stronger wage pressure than in the past.''
Europe's economy shrank 0.2 percent in the second quarter from the previous three months and may not recover in the current period as exports falter and consumer spending slumps. The contraction was the first since the introduction of the euro in 1999.
IG Metall, Germany's biggest labor union, representing 3.5 million workers, said Sept. 8 it will seek a pay increase of between 7 percent and 8 percent when wage negotiations start on Oct. 2. That would be the biggest pay increase in at least 16 years. Workers at Ireland's Electricity Supply Board are demanding an 11.25 percent raise.
“We will do what is needed'' to ensure price stability, Weber said. “We're not pre-committed at this stage.''
Weber's ECB colleague, Nout Wellink, said in an interview this week that interest rates are “adequate'' and there is no need to change them “at this very moment.'' He added that “it all depends on a very large extent on how wages are going to behave in the period ahead.''