If the unions have their method and wages rise by 10 p.c or extra, a wage-price spiral is imminent. Increased wages result in larger costs, which in flip result in larger wage calls for. So says Klaas Knot, president of De Nederlandsche Financial institution. In an effort to fight inflation in that state of affairs, he believes rates of interest should be raised to such an extent that the financial system can find yourself in a recession.
“I’ve beforehand indicated that 6 to 7 p.c wage room is justified. If the central financial institution doesn’t obtain assist from the social companions and the federal government to regulate inflation, rates of interest should be raised, which is able to curb all types of spending. We are going to then be confronted with a long-term, cussed inflation that requires a way more aggressive financial coverage,” Knot mentioned within the TV program Buitenhof on Sunday.
The European Central Financial institution (ECB) raised rates of interest once more final week within the struggle in opposition to excessive inflation. That was much less onerous than earlier than. 1 / 4 of a share level was added in opposition to half a share level the earlier time.
In response to Knot, this has an impact. “We see that the coverage is beginning to work. Lending to residents and companies is turning into tougher. We see that the housing market is beginning to flip round. Our coverage works with a sure lag, the largest results of what we’ve performed to this point are but to come back,” explains the ECB president.
Nevertheless, Knot doesn’t rule out that if inflation doesn’t come below management, rates of interest will probably be additional elevated to five p.c or larger. He emphasizes that this isn’t the expectation. “The place we’ll find yourself in Europe, I can not say something about that in the intervening time.”