vitor constancio : interview in la repubblica interview with mr vitor constancio, vice - president of the european central bank, in la repubblica, conducted by ms tonia mastrobuoni on 15 january and published on 17 january 2018. * * * in december, the ecb revised its growth estimates upwards and its inflation estimates downwards. you seem to be concerned by this discrepancy, and especially by the weakness of inflation, as the minutes [ of the governing council ’ s december 2017 monetary policy meeting ] make clear. how do you explain this? this development is in line with a dynamic we are seeing in all the advanced economies. growth is accelerating but inflation is still not meeting expectations. in particular, the so - called “ core inflation ” for december – excluding food and energy components – has been disappointing : it fell to 0. 9 % because wages still aren ’ t growing sufficiently. but aren ’ t you afraid that there may be structural reasons for this sluggish price movement? such as digitalisation, the internet economy, but also the weak position of an ever increasing number of people on precarious contracts who do not have the leverage to obtain wage rises? yes, the weakness of wages does play a role, as does technology, but nobody knows precisely the scale of the impact of technology. isn ’ t it ironic that the guardians of the currency and wage moderation should be encouraging trade unions and workers to be bolder? the situation has changed. historically, central banks have often faced inflationary pressures. now we are in a new environment that has to do with many structural factors but also with secular stagnation. so we are facing secular stagnation? well, there has been modest growth, and all the indicators say that it will continue like that in the advanced economies for many years. but some people in the united states think there is a risk of a leap in inflation. there are always risks but i don ’ t think this will be a problem for the euro area for some time to come. inflation is weak and will remain so for some time in all the developed countries. are there hidden risks in the current divergence between the fed, which is expected to increase rates three times this year, and the ecb? there ’ s been a divergence several times since the start of the crisis. central banks must respond to the particular fundamental situations of their respective economies. when they do, this does

is also seen within industries. it might be partly driven by the end of the mining investment boom, as workers moved out of mining - related work, including in the construction and business services industries. but it seems to have been broader than that. our central forecast is that this weakness will end as the drag from the end of the boom dissipates and spare capacity is absorbed, such that average earnings growth recovers. there is no guarantee of this, though, and therein lies the risk. graph 5 the living cost pressures that many households feel have therefore been an income story, not a price inflation story. although utilities prices did increase significantly in some states in recent quarters, much of households'regular spending has seen relatively little in the way of price increases for a number of years. weak income growth can run below consumption growth for a time, but not forever. if households start to see this weakness in income growth as permanent, they are likely to change their spending patterns in response. we might be seeing this in the details of the consumption figures : growth in spending on discretionary items, like travel and eating out, has slowed while growth in spending on essentials has held up ( graph 6 ). graph 6 continued weak income growth presents a particular risk to the consumption outlook in the context of high household indebtedness. households do not just wake up one day and collectively decide to pay down their debt. but if incomes turn out weaker than they expect, or some other adverse news should arise, the households carrying the most debt might feel they have to rein in their spending quite a bit. concluding remarks the past and present are never completely clear ; the future is even less so. the three questions i discussed today are not the only ones relevant to the current outlook. they are central, though, and in many ways they are connected. after a long period of spare capacity and low inflation, the global economy is now in an upswing phase. how that upswing plays out, both here and overseas, is a focus of our work. and as we do that work, we are mindful of the structural and other factors that can make a difference to economic behaviour. thank you for your time. bibliography cusbert t ( 2017 ), ‘ estimating the nairu and the unemployment gap ’, rba bulletin, june, pp 13 – 22. endnotes all else is not equal, of course. japan is estimated to have a low nairu of about 3½