The difference between current and potential levels of output in the euro area economy could be greater than the European Central Bank (ECB) originally thought, its vice president, Vitor Constancio, warned on Tuesday.
“What we see, what we observe is that domestic factors of inflation starting with wage and cost developments and then also price decisions are not responding the way we would expect in view of our more common estimates of this slack. So we have to ask ourselves – are these measures of the slack of the economy correct?,” explained Constancio, speaking to CNBC from the ECB Forum on central banking in Sintra.
The board had therefore begun to ask themselves whether other variables should instead be considered to establish a more accurate view of the current economic situation.
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