The European Central Bank’s (ECB) recent statements on inflation and interest rates provide insight into the contradictions of capitalist production. Last month’s headline inflation was 1.9%, under the ECB’s 2% target – an adopted target among central banks in many advanced capitalist economies. Inflation in the Eurozone is expected to average 2.0% in 2025, falling to 1.6% in 2026. With inflation below target and forecasted to dip further, the ECB preventatively cut interest rates to avert disinflation and support accumulation in the capitalist sector. The ECB leans toward holding or carefully cutting rates for the foreseeable (Wall Street Journal, June 11).
Notably, the ECB’s assessment of wages reflects its view of wage pressures as a potential inflationary threat. The ECB’s wage tracker shows growth of around 3.1% in 2025, down from peaks of 6% in 2023 (Reuters, June 11). ECB officials affirm that this is “consistent” with the 2% inflation target, a technocratic way of saying working-class wage demands are under control. With wage growth tracking inflation expectations, the Bank can pursue interest rate cuts without fearing wage-fuelled inflation.
Although the 2% target is somewhat arbitrary, it chimes with the notion that consistent inflation above the target is generally bad for capital. High inflation erodes the real value of profits, disrupts price signals that capitalists use to allocate resources, increases uncertainty on returns, and deters investment. Inflation undermines credit markets and raises interest rates and debt burdens for capital. No wonder Lenin is alleged to have said: “The best way to destroy the capitalist system is to debauch the currency”.
Yet low inflation, said to be consistently below the 2% target, is problematic for capital because it indicates weak demand, discourages investment and depresses profit expectations. It limits firms’ pricing power, making it harder to pass on costs. Low inflation also keeps interest rates near zero, restricting central banks’ ability to stimulate growth during a crisis. Moreover, debt burdens become heavier in real terms, constraining capitalist spending.
The class interests of capital, therefore, lean towards the admittedly arbitrary 2% inflation target because it reduces uncertainty in pricing, wage negotiations, and investment planning. The target gives central banks space to cut interest rates in cyclical downturns and protect the conditions for boosting capital accumulation. 2% is the Goldilocks number for capital: not too hot, not too cold.
Now bourgeois economists frame price stability as a prerequisite of a “healthy economy”. That is in part true, but under capitalism, Communists would argue stability mainly guards the value of financial assets, benefiting lenders, investors, and rentiers. After all, the capitalist classes frequently own claims on future value (stocks, bonds, loans), so they need low and predictable inflation to preserve the real value of those claims. The working class can also very obviously lose in an inflationary environment. Still, their interests are not what is driving the capitalist economy.
Indeed, if wages rise too fast, central banks often reply by raising interest rates, slowing accumulation and increasing the reserve army of labour. During 2022-2024, for example, central banks raised interest rates in response to wage pressures, not to protect workers’ purchasing power but to contain wage-driven inflation and restore “investor confidence”. For those paying attention, this should highlight the limits of union wage militancy in a capitalist context: industrial struggle is Sisyphean in the absence of the political organisation of the working class.
Sure, inflation might not necessarily disappear under a socialist system – even in centrally planned economies with fixed prices, the historical consequence was a transmutation of inflation into goods shortages. However, under the guidance of a state with socialist priorities, the price fluctuations that might sensibly occur through, say, a hypothetical market socialism would be managed in the long-run interests of the working class and not, as they are under capitalism, for the class interests of monopoly finance-capital.
