Mon, 02 Oct 2023

ECB inflation target "long way off": German experts

31 May 2023, 02:44 GMT+10

BERLIN, May 30 (Xinhua) -- The European Central Bank's (ECB) goal of keeping inflation below 2 percent "remains a long way off," the German Leibniz Center for European Economic Research (ZEW) said on Tuesday.

Despite an expected gradual slowdown in inflation in the eurozone, the ECB target is unlikely to be reached before 2026, according to a survey of 181 financial experts conducted by the Mannheim-based institute.

After a temporary drop in inflation in the eurozone, the rate rose again slightly to 7.0 percent in April, dashing hopes of a swift normalization. Financial experts now expect annual inflation to remain high at 5.8 percent in 2023 as rising wages have become an "important inflation driver," ZEW expert Frank Brueckbauer said in a statement.

Nominal wages in Germany, Europe's largest economy, rose 5.6 percent year-on-year in the first quarter of 2023, the biggest increase since the start of the time series in 2008, the Federal Statistical Office (Destatis) said on Tuesday.

As in 2022, however, high inflation more than offsets wage growth in Germany, causing real wages to fall by 2.3 percent in the first three months, according to Destatis.

In Germany, just as in other countries of Europe, collective bargaining negotiations and strikes have repeatedly paralyzed traffic in recent months. Railroad employees, for example, are seeking 12 percent more pay, i.e. an increase of 650 euros (695.50 U.S. dollars) a month.

"There is a danger that excessive wage demands and increases of 12 percent will fuel inflation even further and that the wage-price spiral will continue to spin inexorably," Julia Kloeckner of the conservative CDU party warned in March.

To push down inflation, the ECB has raised its key interest rate to 3.75 percent in seven steps. "Headline inflation has declined over recent months, but underlying price pressures remain strong," ECB President Christine Lagarde said when announcing the latest rate hike earlier this month.

In addition to falling energy prices, the ECB's "active interest rate policy" contributed to a lower inflation estimate than in February, according to the ZEW. The experts expect at least one more rate hike by the ECB in 2023 before interest rates "fall gradually" in the coming years. (1 euro = 1.07 U.S. dollar)

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