FRANKFURT, Oct 30 (Reuters) – The European Central Bank may need to raise interest rates further to counter high inflation and prevent it from spiralling into wages, ECB policymaker Fabio Panetta said on Friday.
The ECB left rates unchanged on Thursday but hinted at a hike — which would be the third this year — at its next meeting to counter an inflation rise caused by a war-driven surge in fuel prices.
Panetta said more hikes may be necessary to stop inflation from taking root and causing a mutually reinforcing spiral between wages and prices.
“Monetary policy … can and should prevent (price increases) from becoming entrenched in the expectations and behaviour of households and firms, triggering a wage-price spiral that would be costly to stop,” Panetta, who leads the Bank of Italy, said.
“With inflation set to remain above target for an extended period and risks skewed to the upside, further increases in the policy rates could prove necessary,” he said, according to prepared remarks for an event in Rome.
In a note of caution, Panetta said the ECB should take into account the recent surge in bond yields, which is already making borrowing more expensive, when “gradually calibrating monetary policy”.
Addressing his country’s debt situation, Panetta said there was “room for further upgrades” to Italy’s credit rating but the government should “stay the course” of prudent fiscal management.
(Reporting by Francesco CanepaEditing by Tomasz Janowski)
