European Central Bank chief Christine Lagarde has rejected union calls to link wages to inflation at the Frankfurt institution as eurozone consumer prices rise.
Adjusting workers’ wages for inflation was “undesirable and unintended,” Lagarde said in an internal memo seen by AFP among employees on May 5.
In a memo first reported by Bloomberg News, Lagarde said many employees were “disappointed” with the raises they received this year under the current pay formula in light of high inflation.
Eurozone consumer prices rose 7.5% year-on-year in April, a record high for the currency union and well above the ECB’s 2% target.
The latest boom is largely due to a sharp rise in energy prices due to Russia’s invasion of Ukraine, according to Agence France-Presse.
“Our mandate is price stability and we will do our best to stabilize inflation at 2 percent,” Lagarde said in a memo to some 3,700 central bankers.
“The leadership of the ECB is asking us and all workers in Europe to take the hit in order to maintain price stability,” said Carlos Bowles, vice president of the IPSO trade union representing ECB staff.
“Obviously this reasoning is not something that we and other European workers can accept,” he said.Lagarde has said on numerous occasions that the ECB is closely monitoring the “second wave of consequences” of inflation as rising prices lead to higher wage requirements.
Such growth can lead to a chain reaction in wages and prices, with rising staff costs supporting high inflation.
Politicians at the ECB are determined to prevent inflation from taking root, thus, as calls for the bank to act by raising interest rates soon mount.
The head of Finland’s central bank said on Sunday that the ECB should “raise its key interest rate in the third quarter, probably in July.”
Any increase would be the first for the ECB in more than a decade and would lift interest rates from their current record lows.