By Jan Strupczewski

BRUSSELS, (Reuters) – Monday’s meeting of European Union finance ministers will discuss a rise in consumer prices and its effect on wages. They also plan to make changes to the budget rules for support investments and to reduce debt.

The inflation rate in 19 euro-zone countries increased by 4.1% last month, compared to 3.4% in September. Ministers fear that higher wages could lead to stronger wage growth which can cause an inflationary spiral.

According to a top EU official, “We had expected that inflation would pick up in this year’s numbers.” “The 4.1% should spark discussion.”

Officials stated that October’s surge was due to a 23.5% increase in energy prices. These will eventually drop again but not at the level before the COVID-19 pandemic.

The official stated that while we should return to less inflation, the process would be slow and there is a risk of wage formation being affected by second round effects. This must be monitored and taken seriously.

Ministers will be briefed by the European Central Bank. This bank is responsible for keeping inflation below 2% in the medium-term. In comments made by El Pais, the Spanish newspaper, Philip Lane reiterated that the bank believes high prices are temporary.

Lane stated that “we believe next year (supply bottlenecks) will ease, and energy prices would decline or stabilize.” “This moment of inflation is extremely unusual and temporary. It’s not indicative of a long-term situation.”

The ‘LONG JOURNEY’

Ministers will begin talks about a proposed reform of EU’s budget rules in order to make them more responsive to the post-pandemic economic reality of large public debt, high investment and climate change support needs.

These rules mandate that the public debt be reduced annually at a rate too high for many EU countries. Fiscal framework is designed to maintain budget deficits under 3% GDP, and to reduce debt to 60% in order to preserve the value of euro. It also doesn’t explicitly support government investment.

The Eurozone governments have a split on the amount of change needed. The EU’s southern members are less keen to ease debt relief rules or give investment special status than those in the north.

The official stated that a balance is needed between prudent policy and fiscal support to growth. These discussions will last until 2022.

It is going to be a difficult journey. The official stated that we shouldn’t rush.