In an
interview with reporters from
Le Figaro, the
Frankfurter Allgemeine Zeitung, the
Irish Times, the
Jornal de Negócios on July 11, 2008, European Central Bank President Jean-Claude Trichet addressed a question that concerned core inflation. Mr. Trichet explained that the core inflation rate is not "a good predictor of future inflation."
The question and Mr. Trichet's response follow:
Core inflation in the euro area is now about 1.7%, so why should we be so worried about inflation?
First, core inflation is higher than that and secondly, we do not consider core inflation as a good predictor of future inflation. But let me give you an example of why we see signs that justify our concerns. Unit Labour Costs are an important indicator of future inflation, because they are a major cost in the euro area economy. In recent years, we have had an increase rate in Unit Labour Costs of 1.0% in 2005; 0.9% in 2006; 1.5% in 2007; and 2.4% in the first quarter of the present year. When you try to disentangle the factors behind this development, about half of the increase is attributable to increases in wages and salaries and the other half is due to a reduction of labour productivity. The overall result is that we have observed in the last two years a significant rise of unit labour costs.