ECB says wages, consumer goods holding back inflation: bulletin

FILE PHOTO: A shopper carries a basket in a supermarket in London
FILE PHOTO: A shopper carries a basket in a supermarket in London, Britain April 11, 2017. REUTERS/Neil Hall/File Photo

August 3, 2017

FRANKFURT (Reuters) – Wages and the price of consumer goods in the euro zone are still growing at a slow pace, holding back inflation despite a strengthening economic recovery, the European Central Bank said on Thursday.

The comment, published in the ECB’s economic bulletin, suggests its view of price pressures remains cautious as it prepares to decide whether to wind down its 2.3 trillion euros ($2.7 trillion) stimulus program.

Years of low inflation had had a knock-on effect on wage negotiations.

Other factors in the slow pace of wage growth “include still significant slack in the labor market, weak productivity growth and the ongoing impact of labor market reforms,” it said.

Higher prices around the world also had yet to start spreading to euro zone consumer goods other than food and “more generally, underlying domestic price pressures remain subdued.”

Given the cloudy inflation outlook, ECB rate setters are reluctant to withdraw their monetary support despite strong economic growth and falling unemployment.

The Frankfurt-based central bank is likely to postpone a decision on the future of its bond-buying program until October, rate-setters told Reuters after their July 20 policy meeting.

A recent strengthening of the euro, a hit for euro zone exporters and a check on import prices, has further complicated the policy picture.

Euro zone inflation was 1.3 percent in July, official estimates showed this week, still well below the ECB’s target of just under 2 percent.

Investors will look for signs on Thursday that Britain is getting nearer to raising interest rates for the first time in a decade, following a policy meeting at which the Bank of England is expected to keep them at a record low once again.

(Reporting By Francesco Canepa; editing by John Stonestreet)