ECB's Lane: Energy inflation to influence wage negotiations

European Central Bank (ECB) Chief Economist Philip Lane said on Friday that the energy inflation is going to influence wage negotiations and setting of prices across the economy, as reported by Reuters.

Key takeaways

"Monetary policy's job is to contain spillovers."

"We need inflation back to target wihtin a year or two."

"We've had tightening in financial condition."

"Exports surprisingly strong is a boost."

"Fiscal policy has been more expansive than expected but we expect tightening next year and after."

"Let's gather information between now and December and let's see what we do in December."

"We need significant liquidity buffer to navigate system's needs."

Market reaction

EUR/USD largely ignores these comments and remains under persistent selling pressure on Friday. At the time of press, the pair was down 0.4% on the day at 1.1170.

Lane flags wage risks but keeps December options open for the Euro

Lane’s 6.2/10 FXS Speechtracker score is only slightly above the 6/10 historic average, pointing to a modestly more hawkish tone but not a major shift. Emphasis that energy inflation will influence wage negotiations and price setting, alongside the need to bring inflation back to target within “a year or two,” underscores concern about second-round effects and supports a bias toward keeping policy restrictive.

Comments that financial conditions have already tightened and that exports are “surprisingly strong” offset some of the hawkishness by acknowledging existing support for the Euro-area economy. The note that fiscal policy has been more expansive than expected but should tighten next year, combined with the “let’s gather information between now and December” remark, keeps December decisions data-dependent.