FRANKFURT (Reuters) – Euro zone wage growth slowed in the final quarter of 2023, prompting markets to bet that wage pressures will dissipate after hitting a record, according to data released on Tuesday by the European Central Bank (ECB).
The ECB emphasizes that wages are now the most important variable in determining the first rate cut.
Wage growth slowed to 4.46% in the fourth quarter of last year, from 4.69% in the previous quarter, its highest level since these data were collected (2005).
The ECB said that data expected in three months, which will include the results of collective negotiations for 2024, will be decisive in the decision whether or not to cut rates.
ECB chief economist Philip Lane has long argued that wage growth of around 3% would be compatible with an inflation target of 2%, but pay dynamics could still remain higher to this figure in 2024, because employees are still seeking to compensate for their losses in purchasing power linked to inflation.
With inflation below 3%, wage growth above 4% suggests a rebound in real incomes.
“This is only a slight decline, but it is broadly in line with expectations that wage growth will start to slow over the course of 2024,” according to Bert Colijn, economist at ING.
“We expect a more significant decline in nominal wage growth before the summer,” added Bert Colijn.
(Reporting by Balazs Koranyi; Editing: Alexandra Hudson)
Copyright © 2024 Thomson Reuters