ECB Sees Faster Wage Growth, But Underlying Inflation Subsiding

16 February 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – Wage growth in the euro area has picked up in recent months, with the assumptions underlying the European Central Bank’s December projections being confirmed by the latest developments in the labour market, the ECB said on Thursday.

‘Wages have been growing faster, broadly in line with the December Eurosystem staff macroeconomic projections for the euro area, supported by robust labour markets and a catch-up with high inflation becoming the main theme in wage negotiations’, the ECB said in its latest economic bulletin.

‘The latest available data suggest that wage pressures are strengthening, albeit remaining at moderate levels’, the ECB said. ‘Clearer signs of strengthening wage pressures going forward come from wage negotiations concluded in late 2022.’

Although risks to the euro area inflation outlook ‘have become more balanced’ of late, upside risks remain, the ECB said. According to the report, these ‘stem primarily from domestic factors, such as a persistent rise in inflation expectations above the ECB’s target or higher than anticipated wage rises.’

The ECB said that ‘most indicators of longer-term inflation expectations currently stand at around 2%, but these warrant continued monitoring.’

Although measures of core inflation ‘remained at elevated levels over the review period, the latest data give mixed signals’, the ECB said. However, ‘the short-term rates of change of several underlying inflation indicators, measured in terms of month-on-month or quarter-on-quarter developments, have started to point to more moderate price pressures.’