Negotiated wages in the eurozone saw a slight cooling trend in the fourth quarter, offering a positive signal for European Central Bank policymakers as inflationary pressures start to alleviate.
Decrease in Wage Growth
In the period from October to December, negotiated wages rose by 4.5% compared to a 4.7% increase in the previous quarter, according to data unveiled by the European Central Bank.
Concerns of Wage-Price Spiral
High inflation levels in 2023 provided leverage to employees and unions in securing wage hikes. However, the ECB had worries that this could trigger a spiral of wage-price inflation.
Annual Overview
The ECB reported an overall wage increase of 4.5% for the year 2023, a significant rise from the 2.9% seen in 2022. Despite the small decline in fourth-quarter growth, it remains higher than the first and second quarters of 2023 at 4.3% and 4.4%, respectively.
Future Outlook
While the slight decrease in fourth-quarter wage growth may offer some relief in Frankfurt, ECB President Christine Lagarde continues to highlight wage growth as a top concern for the central bank. ING senior economist Bert Colijn anticipates a more noticeable decline in nominal wage growth before summer, although no immediate rate cuts are expected from the ECB.
Global Comparisons
In contrast, the U.K. saw higher wage growth at 6.2% for average weekly earnings excluding bonuses, while U.S. hourly earnings in January rose by 4.5% year-on-year.
Conclusion
Overall, the moderation in eurozone wage growth suggests a potential shift in inflationary dynamics, providing some reassurance for ECB policymakers as they monitor economic developments closely.
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