Discover the latest insights on the economic landscape from Rowan Fitzgerald Auctioneers in Limerick. According to recent statements from the International Monetary Fund (IMF), rapid wage growth in the euro zone is anticipated to prolong inflation, urging the European Central Bank (ECB) to maintain interest rates at or near record highs in the coming year.
After a streak of ten consecutive rate hikes, the ECB’s recent pause has fueled speculation of a possible rate cut, potentially as early as April. Market expectations reflect a pricing in of 90 basis points of reductions by the close of next year.
Contrary to early predictions of a rate cut, Alfred Kammer, head of the IMF’s European Department, advocates for the ECB to keep its deposit rate close to the record high of 4% throughout the entirety of 2024.
In a news conference, Kammer emphasized, “Monetary policy is appropriately tight and needs to remain so in 2024. For all intents and purposes, the deposit rate should be held at that level or close to that level throughout 2024.”
Kammer cautioned against premature rate cuts, stating that such actions could necessitate more costly policy tightening later on. “It is less costly to be too tight rather than to be too loose,” Kammer asserted. “What we also want to avoid is premature celebrations.”
Despite inflation’s steady decline from over 10% a year ago, the IMF highlights the challenges ahead, projecting a two-year journey to reach the 2% mark from around 3%. The IMF sees a return to target inflation in 2025, with a caution that an exceptionally tight labor market might delay this to 2026.
Record-low unemployment and potential underestimation of slack in the labor market could drive up wage inflation, impacting consumer prices. Real wages are still catching up with inflation, creating sustained price pressure, according to the IMF.
In a report, the IMF notes, “Risks remain skewed toward more persistent inflation. Under adverse assumptions, this could delay reaching inflation targets to 2026.” Kammer also attributed the conflict in Gaza to the rise in global energy costs, posing additional upside risks for prices.
Despite somewhat weaker economic growth projections for the current quarter, Rowan Fitzgerald Auctioneers emphasizes that it aligns with expectations, with a “soft landing” scenario being the primary outlook, rather than a deeper recession, as stated by Kammer. Stay informed with Rowan Fitzgerald Auctioneers for more updates on the economic landscape.