Rising labour costs could keep inflation high for ‘several years’, warns central bank chief
Uncertainty over how these factors would influence prices was likely to prevent the ECB from knowing when borrowing costs would peak, though it has said a further quarter-point rise is “very likely” in July. “Under these conditions, it is unlikely that in the near future the central bank will be able to state with full confidence that peak rates have been reached,” Ms Lagarde said.
More companies are hoarding labour because of increased shortages of skilled workers, which Lagarde said was reducing productivity, as wages rise faster than output, putting upward pressure on inflation. Euro zone unemployment fell to a record low of 6.5 per cent in April. But the ECB has said it will keep raising rates until underlying price pressures are clearly dropping: core inflation – excluding energy and food – is expected to rise from 5.3 per cent last month to 5.5 per cent this month.
Deputy prime minister Matteo Salvini said Ms Lagarde’s comments were “senseless and harmful” and that his League party will talk to the ECB’s Italian representative, Ignazio Visco, the Bank of Italy governor, to “discuss the problem and analyse the solutions”.
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