Admittedly, wage pressures, unaccompanied by productivity increases, start off as demand shocks, but soon transform to act more like supply shocks. 37. Like any other supply shock, exogenously imposed higher wages can be inflationary in the first round, but the bargaining power of labour will erode in time, and the necessary adjustment will take place to bring wages back in line with productivity levels.
Let me now turn to a very important pledge we have made at the Governing Council, ever since we first embarked on the gradual process of policy normalization: any resurgent fragmentation risks that would undermine the smooth transmission of the normalisation of our monetary policy across all countries in the euro area must be forcefully confronted.