Eurozone's Weak Productivity Risks Higher Inflation, ECB's Schnabel Says

By Hans Bentzien and Ed Frankl

Low productivity in the eurozone is a problem for the European Central Bank as it weighs an interest-rate cut next month, according to executive board member Isabel Schnabel.

Persistently low or negative productivity growth will worsen the effect that rapid wage growth is having on companies' unit labor costs, Schnabel told a conference in Berlin.

"This increases the risk that companies will pass on higher wage costs to consumers, which could delay a return of inflation to our 2% target," she said.

Official data on negotiated wage growth and unit labor costs is due to be published in the coming weeks, which will be important for the ECB ahead of what markets believe is a likely rate cut on June 6.

"In the coming weeks and months, we will have to keep a close watch on whether underlying price pressures ease as predicted, so that monetary policy can be gradually eased," Schnabel added.

Write to Hans Bentzien at [e-mail] and Ed Frankl at [e-mail]

(END) Dow Jones Newswires

05-14-24 1051ET