Rome: The rapid decline in energy costs should help to tame inflation in Europe, Bank of Italy governor Ignazio Visco said on Saturday, urging companies not to seek to boost their margins by leaving prices higher for longer.
Visco, a member of the European Central Bank’s governing council, said the key issue was what happened to inflation now that energy prices had retreated from peaks hit after last year’s Russian invasion of Ukraine.
“I expect that at this point there will also be a cooling in the increase in core inflation, as we call it, which should reflect this reduction in the cost of energy,” Visco told the International Economy Festival in Turin.
“If this happens, (ECB) monetary policy is certainly the correct one at the moment even if I would perhaps have pressed for a more gradual approach,” he added.
Euro zone inflation eased more than expected in May fuelling a debate about the need for further ECB rate hikes beyond an increase expected later this month.
Inflation in the 20 nations sharing the euro eased to 6.1 per cent in May from 7.0 per cent in April, below expectations for 6.3 per cent in a Reuters poll of economists.
Core inflation, which excludes volatile food and fuel prices and which has played an increasing role in the ECB’s policy deliberations, fell to 5.3 per cent.
Visco warned against a wage-price spiral, saying salary rises should come against a backdrop of a growing economy rather than chasing inflation.
He also said companies had a role to play in ensuring that inflation was brought under control so that the ECB did not keep having to push up the cost of borrowing.
“It is not in the interest of companies themselves ... to fail to reflect the lower cost of energy in their prices because then the cost of financing would rise,” he added.