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Wage growth across the euro zone slowed for the first time in 18 months, but economists said the decline was not enough to allay rate-setters' concerns about high inflation.
The annual collective bargaining wage increase for workers in the region rose by 4.5% in the last three months of 2023, compared with 4.7% in the previous quarter, according to data released by the European Central Bank on Tuesday.
This is the first slowdown since the second quarter of 2022, as ECB policymakers need clear evidence that wage pressures are easing and are not being passed through to higher prices before considering cutting rates. That's what I said.
But the interest rate remains above the 3% level, which the ECB says is consistent with inflation falling to its target of 2%, adjusted for productivity growth.
“We can't get everything straight,” said Marco Wagner, an economist at German lender Commerzbank. “There is still plenty of room to suggest that inflation will eventually stabilize above the ECB's 2% target.”
For more than two years, workers across Europe have seen their purchasing power decline amid the biggest inflation spike in a generation, sparked by Russia's all-out invasion of Ukraine. Many people are now demanding significant pay increases to offset the rising cost of living.
ECB President Christine Lagarde said last week that wages will be an “increasingly important driver of inflation trends in the coming quarters,” which means the central bank will avoid “hasty decisions” on interest rate cuts, EU lawmakers said. told.
The slowdown in collective wage growth adds to the signs that wage pressures are starting to ease. A separate tracker of new job salaries by the website Indeed found that they rose again in January after falling for much of last year. A recent survey found that while the number of job openings is falling, companies are hiring fewer people and cutting staff.
Jack Allen-Reynolds, an economist at consultancy Capital Economics, said the negotiations came after sharp slowdowns in Germany and France were partially masked by a big rise in Italy's 2024 wage advance. Wage growth is “probably not as strong as it appears,” he said. The end of last year.
But he acknowledged that the economic slowdown was “not enough” to convince the ECB that wage pressures were easing fast enough to justify a rate cut in April, as he expected.
Eurozone inflation fell from a record high of 10.6% in October 2022 to 2.8% in January. However, the regional unemployment rate remains at a record low of 6.4%, and several ECB policymakers have decided to wait until the first round, to be announced only after the April meeting, before starting discussions on possible monetary policy easing. He said he would like to see quarterly wage statistics. From the current benchmark deposit rate of 4%.
Markets now expect the ECB to cut interest rates by a first quarterly point by June, with three further rate cuts by the end of the year.
ECB board member Isabel Schnabel told the Financial Times this month that there had been an “alarming” recent decline in productivity, as measured by output per working hour, due to labor hoarding and workforce consolidation. As a result, labor costs are rising. Increasing the number of “low-productivity workers” in the labor force and sick leave.
Tomasz Wieradek, an economist at investment firm T. Rowe Price, said Germany's statistics for the past three months did not include the lump sum payments that many companies paid to employees in December, so the first quarter's collective He said wage growth could still accelerate again. .
This factor “makes ECB policy difficult,” Wierardek said, adding: “If the negotiated wage figures for the first quarter of 2024 cast doubt on the view that wage growth is slowing. “ECB policy is difficult,” he added. [ECB] The board could start the cut cycle later than June. ”
