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Lane urges targeted budget support for low-income households

European Central Bank chief economist Philip Lane urged governments to concentrate budget support on low-income households facing higher energy costs. He argued that broad assistance would increase demand and make inflation’s return to 2 per cent harder. In an interview published on 6 October, Lane also discussed Italian wages, uncertain energy-price transmission and the effect of higher long-term borrowing costs.

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Support directed towards low incomes

Philip Lane, the European Central Bank’s chief economist and an executive-board member, urged governments to target fiscal support at low-income households facing high energy prices.[1], [2]

The interview was published on 6 October after being conducted on 1 October. Lane argued that broad, untargeted assistance would increase demand and hinder a rapid return of inflation to the bank’s 2 per cent target.[1]

Lane described high energy prices as an economic loss for Europe, a major energy importer. He said all workers could not be fully insulated from that loss at every point.[1]

Italian real wages expected to recover

Lane cited the September projections for Italian wages to grow faster than inflation in 2027 and 2028. He expected a recovery in real wages and living standards, while saying workers were not fully compensated for this year’s inflation wave. He described relative wages as part of competitiveness and argued that excessively rapid wage increases would not encourage foreign investment or hiring.[1]

Energy transmission remains uncertain

Energy prices were above the bank’s baseline assumptions, but their transmission into the wider economy remained uncertain, Lane said. He said very strong second-round effects had not yet been observed. He also described externally driven increases in long-term interest rates as slowing Europe’s economy and reducing inflation. Lane urged governments to put realistic future interest costs into their budgets and consider a longer horizon.[1]

References

  1. News sourceEuropean Central BankLane urges budget support targeted at low-income households↩1↩2↩3↩4↩5
  2. News sourceANSALane calls for targeted support for low-income households↩
Russia-Ukraine warCentral banks and the rate cycleEnergy transition and climate

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