ECB Economist Downplays Wage Pressure Amid Energy-Driven Inflation

The European Central Bank's (ECB) chief economist, Philip Lane, downplayed concerns that rapid price growth due to energy-driven inflation could become embedded in wages. According to Lane, the ECB is not seeing significant wage pressures in response to this year's energy shock.

Lane stated that people know their cost of living is increasing more than expected and that companies are hesitant to raise wages due to concerns about competition from China and the use of AI robots. He added that once the risk premium is stripped from market data, interest rates are seen peaking at just above 3% next year before falling by the end of 2027.

The surge in energy prices has pushed up market bets for ECB rate hikes, with investors expecting three or four additional moves on top of those in June and September. However, Lane noted that energy prices are currently tracking the ECB's adverse scenario through the middle of next year and may only return to baseline thereafter.

Lane also highlighted low natural gas stocks as a risk, with storage levels at 70% being 16 percentage points below their historic average due to energy firms delaying stocking up on gas over the summer.