Exclusive: Moderation in French Wage Growth Compatible with 2% Inflation in 2024, says Banque de France Expert

22 April 2024

By Isabel Teles – FRANKFURT (Econostream) – The first wage agreements for 2024 recently concluded in France show an average year-on-year negotiated wage growth around 3.5% and point to a moderation trend compatible with reaching the 2% inflation target by the end of 2024 in the country, Erwan Gautier, Banque de France’s head of the Microeconomic Analysis Division, told Econostream in a recent interview (transcript here).

‘In our latest forecast released in March, we expect that the wage growth would be 3.2% in 2024, whereas headline expected inflation is expected to be close to 2% at the end of this year. Overall, this will bolster the purchasing power of wages’, he said.

According to a paper co-authored by Gautier and published on the website of the Banque de France, ‘wage agreements signed for 2024 suggest that base wage growth should continue to decline this year, while significantly outpacing inflation.’

‘The slowdown in wages should also contribute to lower price increases in services’, he added.

Wage negotiations and the national minimum wage, which is indexed to past inflation, reacted to disinflation with some delay in France, he noted, since ‘wage negotiations open at the end of previous year and are concluded during the first quarter.’

‘The thing is that inflation started to moderate in 2023, so that the outcomes of wage negotiations only now reflect this moderation in inflation that started some months ago’, he elaborated.

Another indicator of wage growth, the Indeed Wage Tracker, often referenced by the European Central Bank, showed a moderation trend ‘quite closely correlated’ to the data used by Banque de France, despite focusing on new jobs advertisings rather than the actual negotiated wages, Gautier said.

‘They are sending similar signals, and the respective levels of wage growth in France are very close even if these two objects are quite different in their concept’, he said. Recently, Indeed released new data showing that wage growth in jobs advertised online in euro area countries fell in March, strengthening the argument of a broad-based deceleration of wage growth currently underway, which had been anticipated by an Indeed Wage Tracker in an interview with Econostream in February.

The ECB’s Wage Tracker, on its turn, was based on the same sectoral agreements data used by Banque de France, Gautier explained. ‘So, the negotiated wage increase you would find for France that is aggregated with other countries for the ECB’s use is the same that we use.’

Even with most negotiations still to be concluded, he argued that ‘the signal is quite clear’ and there was evidence that the remaining ones would go in the same moderating direction, as the first quarter was the moment for social partners to discuss wages in France.

‘[Wage growth in] Q1 would be slightly below 3.5% in France, which is below what we had in Q4 2023. This is something we could have expected because of the deceleration in prices and the slowdown in the national minimum wage’, he said.

Even with the moderation in negotiated wage increases in France, there have been some gains in terms of wage purchasing power due to the fast pace of disinflation, Gautier said.

‘So, in France, the average wage increase will be above inflation at the end of this year, the gap is between 1% and 1.5%, which is quite important too in the sense that we expect gains in wage purchasing power in 2024’, he said.