ECB: “Strong wage growth expected in the coming months”

The forecast in response to the weight of inflation with the related loss of consumer purchasing power

In the euro area, wage growth in the coming quarters could be “very strong” in response to inflationary pressures and the related “significant” loss of consumer purchasing power. The forecast comes from the European Central Bank (ECB) which in an anticipation of the next bulletin underlines how this reduction in real incomes will stimulate trade union demands for wage increases.

Wage growth in the coming quarters is expected to be very strong compared to historical models”, observe the Eurotower economists, recalling how the labor market remains ‘solid’ as it has not been affected too much by the economic slowdown. Beyond the short term, however, the slowdown (if not the recession) expected for the euro zone and the uncertainty about the economic prospects for the area could “exert downward pressure on wage growth”.

taking into account theeffect of inflation on workers’ wages, the paper concludes that real wages for consumers “are now substantially lower than they were before the pandemic” and warns they are likely to fall further in the coming months. For the ECB, it is not only the loss of purchasing power due to inflation that stimulates the demand for higher wages, but also the rigidity of the labor market and the current economic situation. In November 2022, the euro area unemployment rate remained stable compared to the previous month at a record low of 6.5%, according to data published today by Eurostat, which represents a value of 0.9 points lower than the level prior to the pandemic (7.4% in February 2020).

Compared to the US, ECB economists point out that real wages have been declining in both areas since the second quarter of 2021 even as more moderate growth in nominal wages in the euro area in the first half of 2022 “led to a steeper decline in real wages than in the United States.” In particular, in the second quarter of 2022, the real annual growth rate of the labor cost index in the United States was -3.3%, while in the euro area it was -5.2%. “Looking forward, given differences in labor market tightness, wage growth could continue to be stronger in the US than in the euro area,” Eurotower concludes.



Source-www.adnkronos.com