ZEW Economist Friedrich Heinemann on ECB Interest Rate Decision // A Signal to Wage Policy (September 2023)

A Signal to Wage Policy (September 2023)

Professor Friedrich Heinemann, head of the ZEW Research Department "Corporate Taxation and Public Finance" at ZEW, comments on the ECB's interest rate decision and the european economy.

The ECB Governing Council has decided on another interest rate hike of 25 basis points. This brings the interest rate for main refinancing operations of the banks to 4.5 per cent. Friedrich Heinemann, head of the Research Unit "Corporate Taxation and Public Finance" at ZEW Mannheim and professor at Heidelberg University, has commented on this matter:

"The persistently high core inflation and the excessively sharp rise in service prices have once again given the advocates of another interest rate hike the upper hand in the ECB Governing Council. This determination in combating inflation is primarily a signal to wage policy: collective bargaining should be able to rely on the return to price stability by no later than 2025, and wages should not require adjustments for future inflation. The ECB is engaging in expectation management with its decisions, and today's signal is significant and valuable."