Lagarde bats back ECB staff ’s inflation wage ask

FRANKFURT: European Central Bank chief Christine Lagarde (pictured) rejected union calls to peg wages to inflation at the Frankfurt-based institution as consumer prices in the eurozone soar.

Indexing the wages of employees to inflation was “not desirable and not intended”, Lagarde said in an internal memo to staff on May 5. In the note, first reported by Bloomberg News, Lagarde said many staff were “disappointed” by the increases they received this year under the current pay formula in light of high inflation.

Consumer prices in the eurozone rose at an annual pace of 7.5 per cent in April, an all-time high for the currency club and well above the ECB’S two-per cent target.

The latest surge has been driven in no small part by steep increases in the price for energy due to the Russian war on Ukraine.

“Our mandate is price stability and we will do what is needed to ensure that inflation stabilises at our two-per cent target’’, Lagarde said in the memo to the central bank’s roughly 3,700 staff.

“The ECB’S management is asking us and all workers in Europe to take the hit for the sake of maintaining price stability’’, said Carlos Bowles, Vice-president of the IPSO union, which represents ECB employees.

“Clearly this line of reasoning is not something that we and other European workers can accept’’, he said. Lagarde has repeatedly said that the ECB is watching closely for “second-round effects” from inflation, as increasing prices lead to higher wage demands.

Such rises can lead to a so-called wage-price spiral, where the increasing cost of staff supports high inflation. Policymakers at the ECB are determined to avoid inflation becoming entrenched in this way, with calls growing for the bank to act by raising interest rates soon.

The head of the Finnish central bank on Sunday said the ECB should “raise the key interest rate in the third quarter, probably in July.” Any hike would be the ECB’S first in over a decade and would lift rates from their current historically low levels.

Lagarde has repeatedly said that the ECB is watching closely for “second-round effects” from inflation, as increasing prices lead to higher wage demands.