Businesses across the euro zone continued to report mounting inflation pressures and an acceleration in wage growth. Even as the overall growth outlook becomes increasingly murky, the European Central Bank said.
Worried about steadily building inflation pressures, the ECB raised interest rates more than expected. And promised further hikes as even longer-term inflation expectations were starting to move uncomfortably high and above its 2% target.
Rising costs for energy and transport were the main concern for most firms. While prices for most materials and component inputs also continued to rise, the ECB added.
Although the ECB has played down wage growth fears so far, businesses pointed to a continued rise on earnings.
Most contacts thought wage pressures were gradually building up; ” the ECB said after contacts with the 71 non-financial firms in late June.
Policymakers fear that if inflation stays high for too long, businesses will start to adjust their wage-setting practices; setting off a hard-to-break wage-price spiral.
Even as prices and employment continued to rise, firms also pointed to waning consumer confidence that spurred fears of a recession later this year.
While households have ample savings for now, they are likely to increasingly feel the financial squeeze from sky high energy prices.
-REUTERS.
