Panetta Says ECB Must Avoid Wage-Price Spiral Spurred by War

Article content(Bloomberg) — European Central Bank Governing Council member Fabio Panetta said that officials mustn’t let war-driven inflation stoke wages, while cautioning against too strong a response.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentIn comments on Tuesday in Rome, the Bank of Italy governor told his institution’s annual meeting of shareholders that fallout from the Iran crisis risks outlasting any hostilities currently gripping the Middle East. Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article content“A highly uncertain environment is taking root and is likely to extend beyond the acute phase of the conflict,” Panetta said. “It will be essential to monitor expectations closely and to prevent a wage-price spiral, while ensuring that monetary policy action remains proportionate and consistent with the ECB’s mandate.” Article contentArticle contentPanetta’s comments provide a snapshot of how thinking at the central bank may be evolving now that the war has entered its second month. Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentUS President Donald Trump has told aides he’s willing to end hostilities even if the Strait of Hormuz remains largely closed, according to the Wall Street Journal. But an attack on a tanker by Iranian drones early on Tuesday — one of the most significant such assaults of the conflict so far — underscores how military action is far from abating. Article contentThe remarks by Panetta coincided with the release of data both in Italy and in the euro region, underscoring how the energy crunch caused by the war has stoked inflation. Given the parallels with the gas-driven shock in 2022, officials are poised to ensure a timely response if needed before any second-round effects take hold. Article content“Monetary policy is again facing a negative supply shock amid high uncertainty, as was the case in 2022, in the aftermath of Russia’s invasion of Ukraine,” Panetta said, while adding that interest-rate settings are now different. “Compared with 2022, monetary policy is now in a more favorable position to safeguard price stability.”Article contentArticle contentWhatever happens next, it’s already the case that price growth will be above the ECB’s 2% target this year, with feebler economic expansion, according to the governor. Article content“If the energy shock were to be stronger and more persistent than in the baseline scenario, inflation would rise further, while growth would be weaker,” he added. Article contentPanetta’s speech also ventured into another key initiative of the ECB at present. Article content“The digital euro will complement cash, not replace it, with a view in providing the public with a secure and free means of payment that can be used under any circumstance, including offline,” he said.Article contentTrending Posthaste: Gold's fall from grace could be worse than markets expect News LNG Canada signs key pipeline agreement required for phase two expansion Energy Air Canada CEO likely sealed his own fate in failing to learn from first language misstep, governance experts say Airlines Subscriber only. Chinese are burying their dead in empty apartments rather than pay skyrocketing cemetery costs Subscriber only Financial Times Air Canada CEO to retire following English-only video controversy Airlines Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information. Posthaste: Gold's fall from grace could be worse than markets expect News LNG Canada signs key pipeline agreement required for phase two expansion Energy Air Canada CEO likely sealed his own fate in failing to learn from first language misstep, governance experts say Airlines Subscriber only. Chinese are burying their dead in empty apartments rather than pay skyrocketing cemetery costs Subscriber only Financial Times Air Canada CEO to retire following English-only video controversy Airlines