ECB Sees No Big Wage Response to Surging Inflation

The European Central Bank (ECB) is not concerned about rising wages due to inflation, according to its chief economist Philip Lane. Inflation in Europe shot past 3% last month and some economists predict it will hit 4% by the end of the year.

Lane downplayed concerns that rapid price growth was at risk of becoming embedded in the economy. He attributed this to people being aware of the rising cost of living, but also knowing that businesses could replace workers with AI robots if wages became too high.

Market bets for ECB rate hikes have increased due to the surge in energy prices. 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.