Central bankers bet weak inflation won’t last forever
WASHINGTON (AFP) — The European Central Bank expects a pickup in inflation even though wages have remained weak during the current economic recovery, its vice president, Vitor Constancio, said Sunday.
Constancio was joined in Washington by other central bank leaders, who likewise said they expected inflation to rise at some point despite its perplexing weakness across advanced economies.
“The apparent disconnect between strong economic activity, on the one hand, and low inflation and wages on the other is one of the stand-out characteristics of the ongoing recovery — almost everywhere, I must say,” Constancio said at a Group of Thirty international banking seminar.
But Constancio expressed “confidence” that as eurozone economies reached growth potential, this “will lead inflation to return to our medium-term objective.”
“Yet this return remains conditional on a very substantial degree of continued monetary accommodation,” he added.
The ECB is to decide this month whether to extend its current bond-buying stimulus into 2018. Inflation in the Eurozone undershot analyst expectations in September, holding steady at 1.5 percent, according to Eurostat.
Companies remain cautious
Meanwhile, Bank of Japan Governor Haruhiko Kuroda told the same event that Japan would pursue its own current stimulus program, but expected inflation would return.
“Modest wage increases and weak inflation relative to the increased momentum of the economy and tightening of the labor market can be explained as a problem,” he said.
One explanation was that, after a long period of low growth, companies were uncertain of future revenues and thus reluctant to raise wages, he said — adding firms would soon face pressure to raise wages, and some in the Japanese services sector were already doing so.
Year-on-year, Japan’s core consumer price index gained 0.7 percent in August.
“Achieving the two percent target is still a long way off and the Bank of Japan will persistently pursue aggressive monetary easing with a view to achieving the price stability target at the earliest possible time,” said Kuroda.