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Voxpress:

Wage growth slows down in the Eurozone

2024-02-22 10:51:48Biznes SHKRUAR NGA REDAKSIA VOX

 

Wage growth slows down in the Eurozone

Data on wage growth in the Eurozone are encouraging, allaying fears that higher wages will lead to further tightening of inflationary pressures. According to the European Central Bank index, negotiated wages in the Eurozone increased by 4.5% at the end of 2023. While this fourth quarter pace remains high, it is a slowdown from the record 4.7% pace recorded in the previous quarter.

The index, which shows potential wage pressures by analyzing unharmonized data by country, was more eagerly awaited than usual as officials in Frankfurt focus on labor costs as a key factor in deciding when to cut interest rates.

However, many want to see the first quarter of 2024 data – due in May – before agreeing to ease monetary policy. ECB President Christine Lagarde called it 'an increasingly important driver of inflation dynamics in the coming quarters', while warning of the risk of hasty decisions on monetary easing if there is no certainty that price growth is on track of 2%.

In December, the ECB predicted that nominal wage growth would gradually decline over time – to 3.3% in 2026 from 5.3% in 2023. It expects wage growth to be limited as businesses pass on higher costs to consumers at a slower pace.

ECB Executive Committee member Isabelle Schnabel argued that weak productivity is exacerbating the impact of current strong nominal wage growth on unit labor costs for businesses, increasing the risk that inflation will delay the cut to 2%.


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