Boris Vujcic, ECB Governing Council member and president of Croatia’s central bank, told the Reuters Global Markets Forum on Friday that the present downturn in the Eurozone economy will help bring down inflation in the region.
Vujcic acknowledged that the second-quarter growth rate of 0.3% was lower than the regulator had predicted.
“If the economy slows significantly faster, inflation will undoubtedly fall faster,” the ECB policymaker said, adding that this could allow the regulator to cut rates “either sooner or more aggressively” and end its toughest ever monetary-tightening campaign, which saw borrowing costs rise to 3.75% from -0.5% a little more than a year ago.
Vujcic, on the other hand, argued that the cuts will not be conceivable until the ECB has clear proof that inflation is on a stable path toward 2%. According to the most recent Eurostat report, inflation in the eurozone stayed constant in August from the previous month at 5.3%, more than twice the target rate.
Vujcic also highlighted that the healthy labor market is still creating rapid wage growth, raising the possibility of further price surges.
“Wage pressures remain, and based on recent data, we don’t see them abating significantly.” As long as things remain this way, I’m worried the final stretch [of deflation] will be challenging.”
