Negotiated pay in the eurozone rose 4.5 percent at the end of last year, the European Central Bank (ECB) said yesterday, easing 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 percent set in the previous three months, the ECB’s negotiated wage indicator showed.
The gauge — which signals possible pay pressures by crunching non-harmonized country data — had been more eagerly awaited than normal this time, as officials in Frankfurt, Germany, zero in on labor costs as a key factor in deciding when to cut interest rates.
Photo: AFP
However, many are even keener to see numbers for this quarter — 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. However, “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 percent target.
While a separate forward-looking ECB tracker of pay continues to signal strong pressures, agreements indicate some leveling off last quarter, Lagarde said.
In December last year, the ECB projected nominal wage growth would gradually decline to 3.3 percent in 2026 from 5.3 percent last year 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.
However, while some officials see this happening, others — such as Austria’s Robert Holzmann — argues that companies are not likely to absorb rising wage bills.
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