Eurozone Wages Are Just Catching Up, No Sign of a Spiral, ECB’s Lane Says

23 June 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – Current Eurozone labour market developments do not constitute a wage-price spiral, though they might slow down the return of inflation to the European Central Bank’s 2% target, ECB Executive Board member Philip Lane said on Friday.

In an episode of the ECB’s podcast, he said that current wage developments were ‘a catch-up phase’, and they were ‘not a spiral.’

He described projected Eurozone wage growth as ‘an inverse spiral’, adding that ‘it's not every year getting higher. It's a big adjustment this year, still more to do next year, still more to do in 2025. So it is a multi-year dynamic.’

The ECB thought that in wage negotiations at the moment, ‘there's a recognition that there has to be a kind of special wage increase, if you like, to not fully make up for last year, but to partially make up.’

Wage pressure was a factor that meant that ‘even though the energy prices are reversing, even though the pandemic bottlenecks are easing, it's not the case, [that we will] come back to 2% overnight.’

‘[O]ur analysis strongly indicates that, with our monetary policy, with the reversal of these original inflation shocks [...] we have a high degree of confidence that inflation will fall back towards 2%. But, in that transition, there will be a phase like we have right now, where […] the return to 2% goes more slowly, because of the need, the inevitability of wages needing a period to catch up.’

The fact that ‘the wage element is pushing up inflation now’ was ‘a kind of natural phase two of a disinflation cycle’, he said, something which wouldn’t ‘last forever’.