Lagarde and Centeno call for discipline on salary increases for 2023

European central bank leaders have warned that governments in the EU must stick to a policy of strict controls on wage increases in order to prevent inflation.

The ECB Forum, an annual meeting of European Central Bank leaders and governors, returned to Sintra today ( Monday, 27 June). The main question on the agenda “inflation” and “salary discipline”.
Central banks in the US, UK and Euro Zone have initiated an aggressive policy to combat inflation which necessarily means tighter controls on wage increases.
The ECB says that unions and employers should ensure that salary deals negotiated for 2023 should not be inflation-adjusted to avoid secondary inflationary effects on prices.
A similar warning had been issued by the Governor of the Bank of Portugal, Mário Centeno (for the Portuguese domestic audience) that increases in salaries by more than 2% could cause “undesirable spirals” in inflation, and that it was therefore “better to not go down that road”.
At a European parliamentary hearing last week, Christine Lagarde issued a warning that taking the historic levels of inflation in the Euro Zone – and the overwhelming majority of other countries – into consideration, it is critical that inflation is controlled, even more so than in previous crises.
Inflation in the Euro Zone (and Portugal) hit 8% in May. For the whole of 2022, the ECB predicts that average consumer prices in the Euro Zone could reach 6.8%, above the medium term target of 2%.
Lagarde’s warning comes five days after Mário Centeno had also warned of the problem in the Portuguese case when presenting the Bank of Portugal’s economic bulletin.
The Bank of Portugal now foresees an inflation rate of 5.9% for 2022 (overall base scenario for the year if the crisis doesn’t deteriorate). In March when the Ukraine crisis began, the inflation forecast was 4%.