Growth in euro area hourly labor costs accelerated more than expected in the first quarter, in line with trends suggested by other indicators and the European Central Bank's view that wage pressures will remain elevated for some time before starting to decline next year.
Eurostat data released on Monday showed hourly labor costs grew 5.1% from a year earlier, faster than the 3.4% increase expected in the fourth quarter of 2023. The increase was faster than economists' expectations of a 4.9% increase.
The two main components of labor costs, wages and salaries and non-wage costs, increased by 5.3 percent and 4.5 percent, respectively.
Hourly labour costs in the services sector rose 5.0% and in the construction sector they rose 5.2%. Labour costs in the industrial sector rose 4.8%.
The data showed EU hourly labour costs rose 5.5 percent after increasing 4.1 percent in the previous quarter.
The largest increase in overall hourly wage costs was economy It has been recorded in Romania, Bulgaria and Croatia.
A European Central Bank indicator released last month showed negotiated wages rose 4.7 percent in the first quarter from a year earlier, up from a 4.5 percent increase in the previous three months.
The ECB said wage pressures in the euro area remain high but are likely to ease next year.
“This negative trend in wage growth should help support our forecast of lower inflation in 2025 as labour cost pressures ease next year,” European Central Bank chief economist Philip Lane said last week.
ECB policymakers said wages would be driven mainly by the ongoing adjustment to past inflation spikes.
The ECB cut interest rates by 25 basis points earlier this month, taking the refinancing rate to 4.25%, its first cut since 2019. Economists expect the ECB to cut rates one more time this year.
Renju Jaya
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