Isabel Schnabel, a member of the ECB's Executive Board, stated that productivity growth is a key determinant of medium-term inflation and real interest rates, which means it directly affects the conduct of monetary policy.
"Over the past year, we have made considerable progress in restoring price stability after the largest inflationary shock in decades. But persistently low, and recently even negative, productivity growth exacerbates the effects that the current strong growth in nominal wages has on unit labor costs for firms. This increases the risk that firms may pass higher wage costs on to consumers, which could delay inflation returning to our 2% target," Schnabel said.
"In this environment, monetary policy needs to remain restrictive until we can be confident that inflation will sustainably return to our medium-term target. The recent long period of high inflation suggests that we must be cautious not to adjust our policy stance prematurely. Measures that help firms boost productivity growth directly support monetary policy in achieving its objective of securing price stability over the medium term," Schnabel added.
The European Commission recently presented concrete action points for improving competitiveness in the euro area, and it is working towards a regulatory framework for enhancing growth. In addition, Mario Draghi is expected to deliver a comprehensive report on the EU’s competitiveness later this year.