ECB not seeing any big wage response to surging inflation

ECB Sees Limited Wage Pressures Amid Surging Energy-Driven Inflation Across Europe

ECB's Response to Energy-Driven Inflation and Wage Dynamics

Current Inflation Trends in Europe

GENEVA, Switzerland, Sept 23 (Reuters) - The European Central Bank is not seeing significant wage pressures in response to this year's energy-driven inflation surge, the bank's chief economist said on Wednesday, downplaying concerns that rapid price growth was at risk of getting embedded.

Inflation shot past 3% last month and some economists see it hitting 4% by the end of the year as fuel and gas prices have shot up in recent weeks on escalating tensions in Iran.

ECB Chief Economist's Perspective

"We're not seeing any big response to the energy shock, and how I reconcile that is (that) people know the cost of living is going up more than they expected," Philip Lane told a university lecture.

"But they've also got a lot of firms that say, 'Look, we're being outcompeted by China; you do know if you ask for too much, we have the AI robots ready to go'," he added.

Market Reactions and Interest Rate Outlook

Impact of Energy Prices on Rate Hikes

The surge in energy prices pushed up market bets for ECB rate hikes and investors now see another three or four moves on top of the ECB's hikes in June and September.

Interest Rate Projections

But once the risk premium is stripped from market data, the interest rate peak is seen at just above 3% next year, then falling by the end of 2027, suggesting that only two further hikes are actually priced in, Lane said.

Risks Associated with Energy Prices and Gas Stocks

Energy Price Scenarios and Potential Risks

Still, Lane acknowledged that energy prices are now seen tracking the ECB's adverse scenario through the middle of next year and only coming back to the baseline thereafter, creating a potential risk.

Concerns Over Gas Storage Levels

Lane also noted that low natural gas stocks were a risk.

Energy firms delayed stocking up on gas over the summer and storage levels, at 70%, are 16 percentage points below their historic average.

(Reporting by Olivia Le Poidevin; writing by Balazs Koranyi; Editing by Kevin Liffey and Cynthia Osterman)