(ANSA) - MILAN, FEBRUARY 11 - The governor of the Bank of Italy, Ignazio Visco, warns of the risks of a race between labor costs and inflation.
"Should signs of a wage-price spiral appear and inflation expectations become insufficiently anchored, a further significant tightening of monetary policy would certainly be justified", he warns, speaking to students at the Warwick Economics Summit in London, with a lecture entitled 'Monetary policy and the return of 'inflation'.
Visco reiterates that a phase of "extreme uncertainty" such as the current one should prompt the ECB to "move gradually and prudently" with a "progressive but measured" rate increase, guided by the data, attributing "equal weight" both to the risk of strangling the economy with overly aggressive maneuvers, and to not doing enough to stop inflation.
"I am convinced that the credibility of our actions is preserved not by flexing muscles in the face of inflation but by continuing to show wisdom and balance".
The governor does not believe that "the euro area can experience the long persistence of inflation observed in many countries during the 1970s", thanks not only to the "substantial improvements in monetary policy but also and above all to the numerous structural changes that have taken place in the our economies ever since".
"It is easy to lose it" but "if the current reduction in inflation", generated by the fall in the price of gas, were followed by a "similar trend" of the 'core' one, "the supply shock will have proved to be temporary".
Instead, what must be avoided is the price-wage spiral which, in the 1970s and 1980s, was fueled by the "indexing mechanisms" of labor costs, "which helped to spread inflation over time by imposing very restrictive".
(HANDLE).