Eurozone wage growth slowed in fourth quarter: ECB
NEGOTIATED pay in the eurozone rose 4.5 per cent at the end of 2023, according to the European Central Bank – soothing fears that rising salaries could sustain inflation above the target.
While still high, fourth-quarter pay growth is down from a eurozone record of 4.7 per cent, notched in the previous three months, the ECB’s negotiated wage indicator showed on Tuesday (Feb 20).
The gauge – which signals possible pay pressures by crunching non-harmonised country data – had been more eagerly awaited than normal this time as officials in Frankfurt zero in on labour costs as a key factor in deciding when to cut interest rates.
Many, though, are even keener to see numbers for the first quarter of 2024 – due in May – before sanctioning a loosening of monetary policy.
“This slowing in wage growth at the end of last year should bring some relief that the feared wage-price-spiral will not unfold in the eurozone,” said Carsten Brzeski, global head of macro at ING. But “the ECB will definitely want to wait for first-quarter wage growth data before deciding on rate cuts. There’s no reason to change our call of a first cut in June.”
ECB president Christine Lagarde last week singled out salaries as “an increasingly important driver of inflation dynamics in the coming quarters,” while cautioning against “hasty decisions” on easing policy without assurance that price gains are headed back to the 2 per cent target.
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While a separate forward-looking ECB tracker of pay continues to signal strong pressures, agreements indicate some levelling off in the last quarter of 2023, she said.
In December, the ECB projected nominal wage growth would gradually decline over time – to 3.3 per cent in 2026 from 5.3 per cent in 2023, in terms of compensation per employee.
It expects pay increases to be limited as firms pass higher costs on to consumers at a slower pace. But while some officials see this happening, others – like Austria’s Robert Holzmann – argues that companies aren’t likely to absorb rising wage bills.
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ECB Executive Board member Isabel Schnabel argued on Friday that weak productivity “exacerbates the effects that the current strong growth in nominal wages has on unit labour costs for firms,” raising the risk that firms shift higher pay costs to consumers and delay inflation’s return to 2 per cent. BLOOMBERG
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