Consumer confidence in the euro zone strengthened in May to its highest level since early 2022, and wage growth supported expectations that the European Central Bank will end policy easing with an expected rate cut in June.
Preliminary results of the European Commission's monthly survey released on Thursday showed that the preliminary consumer confidence index rose to -14.3 from -14.7 in April, marking the fourth consecutive month of increases. Economists had expected the score for the month to be -14.0.
The corresponding index for the EU rose to -13.2 from -13.7 the previous month.
The readings for both indexes were the strongest since February 2022.
Consumer confidence remains below its long-term average, the committee said.
Data for the latest survey was collected from May 1 to May 22.
The final results of the Consumer Confidence Index are scheduled to be released on May 30th, along with the monthly economic survey data.
A European Central Bank figure released early Thursday showed negotiated wages rose 4.7 percent in the first quarter from a year earlier, faster than the 4.5 percent increase in the previous three months.
Bert Collin, an economist at ING, said the increase was unexpected as wage growth is expected to slow, but that Germany's catch-up effect could lead to another rise at the start of the year.
“This should allow purchasing power to recover faster than expected, boosting household consumption and, in turn, supporting the cautious economic recovery that the eurozone has embarked on,” the economist said.
Collaine also noted that concerns about how quickly wage growth will ultimately fall are likely to further heated up discussions as ECB policymakers gather for their next policy meeting in two weeks. .
“We don't think this will deter the ECB from cutting rates in June, but it is likely to ensure they remain on hold in July,” Colin added.
Commerzbank economist Marco Wagner also believes the latest data is unlikely to prevent a rate cut in June, but that it may cast uncertainty over the outlook for further easing beyond that.
“The latest figures do not prevent the ECB from cutting interest rates for the first time in June, especially since the Governing Council has a dovish majority,” Wagner said.
“However, current market perceptions predicting further interest rate cuts, especially in 2025, may be too optimistic if wages continue to rise strongly in the coming months and risks of rising inflation materialize.”
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Written by Jyotsna V
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