Inflation in the Eurozone is stuck at too high a level and wage growth is keeping upward pressure on prices, Christine Lagarde, president of the European Central Bank (ECB), said in a speech last week at the annual meeting of the International Monetary Fund in Morocco.
“Core inflation remains at elevated levels” because lower costs of raw materials and finished products are being “counterbalanced by rising labor costs,” she noted. “Employees demanding compensation for the loss in purchasing power among tight labor markets has resulted in historically high wage growth.”
However, inflation in the Eurozone is still on track to fall to the ECB’s 2-percent target in 2025, she added.
“Wage growth is expected to decline gradually, although remaining high” over the medium term, “driven by increases in minimum wages” and inflation compensation, Lagarde said.
The region’s labor market will ease somewhat but remain tight, she predicted.
“Downside risks include weaker demand” due to the central bank’s record-high interest rate “or to a worsening of the international economic environment,” she warned.
Also, “growth could be slower if the effects of [high interest rates] turn out to be more forceful than expected or if the world economy weakens further and geopolitical risks intensify,” Lagarde said.
On the other hand, “growth could also be higher than projected if the strong labor market, rising real incomes, and receding uncertainty boost confidence among consumers and businesses and lead them to spend more.”
TREND FORECAST: Negative economic forces outweigh positive ones in the Eurozone. Core inflation seems stuck; rising wages will be blamed by the banksters as a key factor in driving inflation higher.
However, its high interest rates, a troubling high-cost energy outlook hobbling business investment, the war in Ukraine continues to hamper Europe’s economic activity, and a sluggish world economy gives Europe’s factories little to be optimistic about in the short and near terms.
And now the Israel War is making a bleak future much darker.
Therefore, we continue to see Europe falling into recession, beginning in this quarter or the next.