Joachim Nagel: The labour market – supporting the economy or fuelling inflation?

Speech by Dr Joachim Nagel, President of the Deutsche Bundesbank, at the OMFIF Economic and Monetary Policy Institute, Edinburgh, 24 March 2023.  

The views expressed in this speech are those of the speaker and not the view of the BIS.

1. Introduction

Ladies and gentlemen,

Thank you very much for the invitation to speak to you today – I am delighted to be here.

Edinburgh was not only the temporary home of Scotland's national poet Robert Burns. During the 18th century, the leading philosophers, economists and friends David Hume and Adam Smith lived in Edinburgh, too. In the first sentence of his famous "Inquiry into the Nature and Causes of the Wealth of Nations", Adam Smith wrote: "The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations." Smith understood very well the importance of labour, at the national level as well as across borders.

The labour market is a centrepiece of the economy as well as a barometer of its health. Today, I will focus on the role of the labour market, 300 years after Smith was born. Is it supporting the economy or fuelling inflation? And what does this imply for monetary policy, particularly in the euro area?