ECB Economist Downplays Wage Pressures Amid Energy-Driven Inflation

The European Central Bank's chief economist Philip Lane has downplayed concerns that rapid price growth could become embedded due to this year's energy-driven inflation surge. Lane stated that the bank is not seeing significant wage pressures in response to the current energy shock, suggesting that people are aware of the cost of living increase but are also aware of firms' competitiveness.

Lane noted that some firms are hesitant to raise wages due to competition from China and the threat of automation. He also acknowledged that low natural gas stocks and delayed stocking by energy firms pose a risk to the economy. The ECB had previously hiked interest rates in June and September, and market bets now see another three or four moves on top.

However, once the risk premium is stripped from market data, the interest rate peak is seen at just above 3% next year, then falling by the end of 2027. Lane also mentioned that energy prices are currently tracking the ECB's adverse scenario through the middle of next year and only coming back to the baseline thereafter.