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The ECB is leaving the deposit interest rate at 4 percent. When this changes depends, among other things, on the extent to which employees can demand wage increases.
Ruben Mooijman, Ruben Mooijman
Thursday, January 25, 2024, 2:15 p.m
What does your savings account have to do with the six-day rail strike in Germany? More than you think, this became clear at the press conference where ECB President Christine Lagarde explained monetary policy in the eurozone.
The rail strike was not discussed directly, nor were savings interest rates. But Lagarde has repeatedly said that rate trends depend in part on data on wage increases that will be available later this year. If wages rise more than expected, this could slow the decline in inflation. After all, these wages must be paid with the proceeds from products and services. If inflation does not fall quickly enough, the ECB will not lower the deposit rate. And as long as there is no movement in the deposit rate, banks will not adjust interest rates on savings accounts. To get to the point: If you want as much interest as possible, you have to hope that the strike will be a success and that the drivers will earn more.
In reality, of course, things are more complex. Lagarde also emphasized this. Not only wages but also profits play an important role. If companies are willing to give up part of their profits, there is scope for higher wages without significantly affecting the general price level. Lagarde hinted that this is happening in the Eurozone. This is remarkable because last year we regularly heard that company profits had actually remained quite stable. But demand for goods and products is declining, explained Lagarde. In order to stimulate this demand again, it is not a good idea to stick to normal profit margins.
Of course, this all happens at the eurozone level. In Belgium the dynamics are very different. The wage increases are a given because there is an automatic inflation correction. But elsewhere in Europe higher wages have to be fought hard for, as German train drivers show.
Wages and profits still don’t tell the whole story. The Middle East is also a focus. Saber rattling is a risk factor for inflation because the price of oil often reacts to it. That’s not so bad for now, but another source of danger is now emerging: the shipping route through the Red Sea. When ships have to take detours, it costs more fuel and wages. Transport costs are rising, which is also reflected in the prices of goods. However, there is no reason to panic, as transport costs usually only make up a small part of the overall cost structure.
Investors were primarily looking for clues as to when the ECB would cut interest rates. But Lagarde remained tight-lipped about it. She did hint between the lines that such a decision would require data that would only be available later this year. When asked, she confirmed her statements in Davos in which she suggested that a reduction before the summer was unlikely.
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