Lagarde bats back ECB staff’s inflation wage ask

As consumer prices in the eurozone rise, European Central Bank president Christine Lagarde rejected union requests to tie wages to inflation at the Frankfurt-based organization.

In an internal communication to staff seen by AFP on May 5, Lagarde stated that indexing employee compensation to inflation was “not desired and not planned.”

In the message, Lagarde added that in light of strong inflation, many employees were “disappointed” with the raises they received this year under the present compensation structure.

In April, eurozone consumer prices increased by 7.5 percent on an annual basis, a new high for the currency bloc and considerably beyond the ECB’s two-percent objective.

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

“Our mandate is price stability and we will do what is needed to ensure that inflation stabilizes at our two-percent 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.

The ECB is keeping a careful eye on “second-round consequences” from inflation, as rising prices lead to higher wage demands, according to Lagarde.

Such increases can lead to a wage-price spiral, in which rising labor costs sustain high inflation.

The European Central Bank’s policymakers are determined to prevent inflation from getting entrenched in this way, and pressure is mounting on the bank to act quickly by hiking interest rates.

On Sunday, the governor of Finland’s central bank stated that the European Central Bank should “increase the key interest rate in the third quarter, most likely in July.”

Any increase would be the ECB’s first in more than a decade, and it would raise rates from their present record low levels.