The European Central Bank (ECB) will need to see proof of slowing wage growth in the euro zone before interest rates can be lowered, ECB governing council member Klaas Knot said on Sunday.
“We now have a credible prospect that inflation will return to 2% in 2025. The only piece that’s missing is the conviction that wage growth will adapt to that lower inflation”, the Dutch central bank governor said in an interview with Dutch TV program Buitenhof.
“As soon as that piece of the puzzle falls in place, we will be able to lower interest rates a bit.”
That’s just straight up not true. Companies like profits, so they’ll keep raising prices as long as people keep paying them. If people don’t have money to spend on shit, they won’t, and thus the prices will have to go down or at worst stagnate.
But sure, keep thinking you understand the issue better than people who have studied everything about the issue and are actually paid for their knowledge.
Actually, looking at the source, they openly disagree with you. Here is what they say:
They are saying inflation is going down, but wage growth may not be. In other words, they aren’t keeping interest rates high to combat inflation, they are doing so to combat wage growth and wage growth alone. The only person here who thinks wage growth and inflation move in lockstep is you.
This is of course true whether or not wages go up.
No, the prices don’t have to go down or stagnate. Products don’t become cheaper or easier to produce because there are fewer people who can buy them. In fact the opposite is true. Cost per unit is higher as total units produced goes down.
Oh, I do think they understand this, and they are paid, but not necessarily for their knowledge.
If I might add, what do you think costs are?
Do you think there’s a box you put cash into and it gives you iron ore back?
Nope, there’s a miner who gets paid to get it out of the ground. The miner uses a pickaxe which costs something, sure, but who do you think made the pickaxe? It was a worker somewhere who got paid to manufacture it.
Money doesn’t disappear, it goes into someone’s pocket eventually, either through wages or through corporate income.
If costs are going up it means that someone somewhere is getting richer, meaning he has more money to spend, meaning things get more expensive.
I am intentionally using a somewhat loose term; costs are uses of finite resources. This could be labor, or it could be a physical item, like the iron ore you say I think is retrieved by putting cash in a box. And I’ll pay you the same respect you’ve paid me by asking: do you think workers simply will iron ore into existence? Or make food, independent of the presence of fertile topsoil, water, and sunlight?
Yes, and the point is I want more of that money go into workers’ pockets through wages than into owner’s pockets through profits.
You literally just said that money doesn’t disappear. Someone is getting richer either way. She’ll have more money to spend regardless of if she’s an owner or a worker.
It is true that wage growth does generally cause inflation. That’s one reason you can live in the global south so cheaply. It’s also why workers are so bad off there. Another example is Europe compared to the US: prices are higher in Europe, but workers get paid more and are better off than workers in the US. The whole point is that when workers’ wages go up, they have a bigger portion of the total amount of money, and thus are better off. This inflation fearmongering is all a distraction from that.
In terms of costs, yeah, that’s exactly what they do. Someone’s getting money for it, be it the land owner, the workers, the company providing the tech for it. Doesn’t matter, there’s always a person at the end of the cost pipeline.
In terms of inflation, this just doesn’t help. Workers spend almost everything they get (living paycheck to paycheck), rich people do still spend the money (which means the money ends up in someone elses pocket) and yes, they will spend more than the average worker, but they also invest a big chunk, usually locking up the money, and at least temporarily taking it out of circulation.
Which reduces inflation, that’s the point of high interest rates :)
Allow me to introduce Robert Reich who has both the education and professional experience in the domain.
https://youtube.com/@RBReich?si=hCE4ksrSia8HO8uO
You’d find a lot of propaganda debunked.
Here is an alternative Piped link(s):
https://piped.video/@RBReich?si=hCE4ksrSia8HO8uO
Piped is a privacy-respecting open-source alternative frontend to YouTube.
I’m open-source; check me out at GitHub.