ECB Governing Council member Joachim Nagel anticipates a positive trend in Eurozone salary data, but urges caution about interest rates after a possible first rate cut in June.
“I expect wage growth to slow down as inflation continues to fall,” the Bundesbank governor said in an interview. “As far as things are concerned, things seem to be moving in the right direction.”
Nagel said that if upcoming data and new forecasts confirm policymakers' expectations, then implementing the first rate cut within three weeks “seems reasonable”, but the ECB cannot rush to further relax monetary policy. “We should not hastily cut interest rates, jeopardizing the results we have achieved.”
Two days later, the ECB will release first-quarter salary data, which the bank believes is essential to assess potential price dynamics. According to data from the EU's largest economy, growth in agreed wages may not have slowed significantly.
Despite his optimism about pay, Nagel called for continued careful monitoring of its development.
“Stronger wage growth may translate into greater price pressure,” he said. “We must pay close attention to wage growth, corporate profit margins, and their impact.”
Although the first rate cut in June seems like a foregone conclusion, it is currently unclear what will happen later, even though officials from both groups within the management committee seem to tend to cut interest rates about 3 times this year, 25 basis points each time.
Nagel stressed that uncertainty is still high, so even cutting interest rates for the first time in June does not mean that interest rates will be cut further at subsequent meetings. “We're not on autonomous driving,” he said.